• Insights

Italy – New mechanism for employers to encourage retirement introduced

Written by
Toffoletto de Luca Tamajo, working in employment law since 1925.
A new legal measure designed to encourage employees to retire has been introduced in Italy. This article sets out a description of how this new instrument works for employers and employees. 

Italy has implemented a pension reform in recent years, which has increased the state pension age in order to improve the system’s sustainability. Under the current rules, from 1 January 2019, the retirement age is 67. In addition, in order to access their pensions, employees must have paid social security contributions for a period of 20 years (to qualify for the old-age pension). Regardless of age, all workers who have paid social security contributions for a certain number of years can access their pensions. In general, men must pay social security contributions for a minimum of 42 years and ten months, while for women the minimum period is 41 years and ten months (early retirement).

As a consequence, a number of ‘pension tools’ have been introduced in order to increase the flexibility of the Italian pension system. The most recent one aims to foster employees’ exit when they are nearing retirement age through social security contributions made by the employer. It was introduced by law n. 58 of 28 June 2019, converting the so-called ‘Growth Decree’.

The new measure provides companies employing more than 1000 employees with the possibility (within the context of a reorganisation or reindustrialisation process) of signing an agreement aimed at hiring new employees (contratto di espansione) with the unions and the Ministry of Labour to encourage employees who are close to retirement to terminate their employment relationship, with their consent. In particular, employers can pay a monthly allowance to employees who will meet the old-age pension or early retirement requirements in five years’ time, until those requirements are reached. To benefit from this measure, employees need to have made at least 20 years of social security contributions. Besides this measure, the agreement could also provide for a reduction in working hours for employees who do not meet the above requirements.

The allowance is equal to the gross pension amount to which the employees would be entitled on termination of their employment and includes the unemployment allowance to be paid (if due) to the employee after the termination of his or her employment.

This measure will be applied on an experimental basis in 2019 and 2020 and, in addition, will be accessible only within the budget limit provided for by the same law, which is EUR 4.4 million for 2019, EUR 11.9 million for 2020 and EUR 6.8 million for 2021.

Emanuela Nespoli
Partner - Italy
Toffoletto De Luca Tamajo