Introduction
Italy just like any other country in the world has an extensive social security system to secure the future of its vast majority of the population. The system provides benefits to people incase of unemployment, sickness and maternity, work-place accidents which may render one to be disabled, old age retirement benefits and family allowances. It is important to point out that the system excludes National Health Service from Its services provision as this is funded from generation taxation. (ISAT, 12)
The government of Italy runs the system through several state agencies which falls under one umbrella of National Institute of Social Security. The system promotes both the contributory and the welfare system (US SSA). In the contribution system the people are required to contribute part of their income to at least one of the many systems. If they are employed the employer also contributes some income on behalf of their employees. The welfare system covers those who have never been in paid employment because they are not covered in the contributory system.
Eligibility and contributions
Employees
The Italian social system provides same benefits to those legal Italian workers. All employers are thus required by law to register all their employees with the INPS. Each month the employer deducts the required amount of income from the employee gross salary and submits it together with employer contribution to the INPS (OECD). In Italy the rates of contribution vary from industry to industry by in all industry the employer pays two thirds while the employee pays the remaining one third.
The self employed
For those people with registered businesses, it is also mandatory for them to register with the INPs. Their contributions which are calculated depending on income (old business) or estimated income (new business) can be made either to separate organizations (cassa) or directly to INPS (OECD). In Italy professionals like architects, lawyers , accountants, engineers and other freelance professional who are self employed are allowed to submit their contributions to the own cassa(US SSA). Other self employed like the part time employees can make their contribution directly to INS.
Accredited contributions
Accredited contributions refers to contributions made by the state incase the contributor is unable to honor contributions because of unemployment, military service period, maternity leave and sickness which is more than four days and less than 12 months . For the state to offer this type of contributions the individual has to apply to INPS with the relevant documents incase of sickness ((OECD).
Other
The Italy social security system also recognizes contributors from other European countries. Those who have worked in other EU countries and paid regular contributions for a minimum of two years are entitled to benefits calculated from the last date of contribution in the home country. For one to enrolled into the system he/she must obtain Form E106 from home country and submit it to the local social security(US SSA).
The Italy social security extends even beyond borders where it has agreements with around 40 countries in Canada, US and EU countries (OECD) This kind of agreement allows expatriates to remain under their home country social security system for a limited period of time. The rule excludes those originally working in Italy for they cannot contribute to their home country socials security system but to Italy system.
Types of Benefits
The main aim of creating a social security system is to benefit the members in terms of pensions (retirements), disability benefits, sickness benefits among others.
Retirement benefits
The demographic composition of the working population in Italy has undergone a tremendous change. It is estimated that in the next decade 25% of the population will compose of people over the age of 60 years and will reach 40% by 204 (Lei, 14). The short-run policy strategy for early retirement and seniority pension had discouraged old people from remaining actively involved in the labor market. This a led to a steady growth of retirees estimated to be 22 million as compared to 21 million employees (Lei, 14). If this trend was allowed to continue strain on the pension scheme will be evident and it’s for this reason that 1995 pension reforms created room for gradual retirement.
Under the new reform males workers who have contributed to the system for at least 35 years and 40 years employed and self employed respectively and are over the age of 60 are eligible for retirement benefits(OECD) . Likewise female workers must have contributed to the system for over 35 years and be over 57 years of age to be eligible for retirement benefits. Before applying for the pension either to the cassa or INPS workers are required to retire from all forms of employment including both formal and self employment.
Three pillars system of pension
Pension system in Italy is operated under three pillars (Lei, 14). The first pillar is a public and compulsory system commonly known as Pay-as-you-go (PAYG). This system was largely dominant until the mid 1990s (Lei, 15). In this system the level of pension one received depended on amount of salaries earned during working years.
The reforms which were introduced later changed this view by basing the level of pension earned on the amount of contributions made to the system during working years. In this system the rate of substitution between salaries and pension fell by almost one third but with differing effects on different categories of employees (OECD). The system does not affected the class of workers who were contributing before 1996 but it effects on the younger and self employed employees will be great. The system seems to discourage earlier retirement.
The second pillar is a private and voluntary system which is collectively funded by workers from a similar background (US SSA). Such schemes are founded by banks, insurance and saving management companies. The returns on such investments are not fixed and the rate of substitution depends on several financial factors.
The third pillar is also private and voluntary with the only difference belong that it allows individual contribution rather than collective contribution.
Categories of benefits calculation
Category I
This category covers those who started contribution after 1st January 1996. The notional contributions which are equal to 33% are adjusted annually based on the average increase to the rate of gross domestic product during the last five years (OECD). During retirement depending on ones age the accrued notional contribution amount is multiplied by actuarial co-efficient
(OECD ) provides the table below which is based on demographic forest casts by ISTAT 2001.
Category one discourages pensioners from returning to gainful activity for those younger than 63 loses 100% of pension and those above 63 loses 50% of pension if they decide to return to employment(OECD).
Category 2
Those who workers with less than 18 years of contribution as at December 31, 1995 falls under this category and their rate of pension payment is calculated using a regressive percentage. i.e 2% for earnings not greater than EUR 38,909.78 to 0.9% for annual earnings greater than EUR 75,040.29(OECD). The regressive percentage is multiplied by number of numbers of years that contributions are made to a maximum of 40 years. Those individuals who have made contribution for more than 15 years can opt for their calculation to be made using category one above.
Category 3
This category calculated annual earnings using the same regressive percentage above but it is for those with more than 18 years of contributions as from December 31, 1995. The pensioners in this category can regain gainful activity without fear of losing their pensionable amount(OECD).
Despite the amount of income the pension law specifies the minimum monthly pension to be EUR 443.12 for a single pensioner who earned a minimum wage and for those who earned more than EUR 11,521.12 annually their pension paid per month is reduced (OECD).
Seniority pension
As stated elsewhere in the text the Italy government is encouraging gradual retirement if at all to keep more people working to reduce the gap between retirees and the employees. Seniority pension was created to encourage the people who had reached retirement but are able bodied to continue engaging in gainful activity (US SSA). Under this scheme workers who have made more than 40 years of contribution to the system to those who are aged 58 years but with 37 years of contribution, can go back to work without affecting their pension earnings.
Disability pension and disability allowance
The Italy socials security also gives benefits to workers who because of their disability are unable to work. The disability pension which is not permanent is paid to workers who prior to their disability had made a not less than five years contribution to the security system (US SSA). The workers are required to make a formal application to their respective cassa of to INPS not later than three years after their last contribution. When one applies for disability allowance and his age allow him/her to retire his application is calculated under the old age pension scheme however of one is below the retirement age he/she is entitled to disability allowance (US SSA).
The method for calculating the amount of disability pension payable to an applicant jus like the retirement pension depends on the start date of the voluntary contributions. For those who had begun contribution on or after January 1, 1996 calculation is on notional annual contribution which is equal to 33% of annually insured earnings(ISTAT, 13). The same with retirement pension the notional contributions are adjusted annually depending on the average rate of increase in gross domestic product as recorded in the last five years. The actuarial co-efficient for calculating the notional contribution this is accrued during working lifetime varies with age (from 4.720% at the age of 57 and 6.136% at the age of 65)(OECD). This means if disability starts before age of 57 the coefficient for age 57 is used to calculate the notional earnings.
The disability allowance as cited above is temporary fro the first 6 years and if such a person is unable to resume gainful activity it is made permanent. the benefits are calculated using mean test and if one the allowance is more than four times the minimum annual wage EUR 23,0.42.24 it is reduced by 255 and by 50% if the allowance exceeds the minimum annual legal wage by five times EUR 28,802.80 ( US SSA). It is important to note here that the legal minimum wage in Italy is EUR 5,760.56.
Sickness Benefits
Sickness and maternity benefits are extended to every legal resident of Italy. The INPS contributes up to 50% of workers average daily wage if the worker is not able to work because of illness (US SSA) . The benefits is payable after fourth day is sickness and to a maximum of 180 days in any given year. Workers who are on contract are paid based on the contributions made to the system in the previous 12 months prior to their sickness and INPS only pays if they are hospitalized. The employed are supposed to provide evidence paperwork form their employers.
Maternity benefit
Under this law all employed, contract and self-employed are entitled to maternity leave. The contract and self-employed only qualify if they meet the contribution and income criteria provided in the INPS rule (OECD). Expectant mothers are entitled to five consecutive months, two prior and three after birth paid leave. The employed mother receives 80 percent benefit depending on her salary one month prior to the leave period. For those who are self employed they will also receive 80 % benefit depending on income over the last 12 months prior to the leave period.
Incase of mothers death during birth or abandonment of the child the father are entitled to paternity leave. INPS also provides conditions in which adoptive parents may also be entitled to maternity leave (US SSA).
For those who wish to apply for parental benefits they are entitled to take 11 months off work before the child is eight years of age and double the amount of time if the children are twins. During this time the parents are entitled to receive 30 percent of their salary as calculated in the maternity leave above (US SSA).
Survivors benefit
The eligible members for this type of benefit are the spouse, a separated spouse who is entitled to alimony, children who are younger than 18 years of age , nephews and nieces as well as grandchildren as long as they can prove their dependency on the deceased(OECD). A substitution for this type of benefit in the name of death grant is made to those who do not qualify for survivors benefit. However, the deceased must have contributed for at least one year in the last five years prior to his death.
Under the survivors scheme spouse is entitled to 50% of the deceased average earnings. The orphan younger than 18 years receives 20 % incase of one parent death and 405 if both parents are deceased (US SSA). Other beneficiaries in the absence of the above are entitled to the specified percentages. However, the total benefits paid should not exceed 1005 of the deceased average earnings.
Conclusion
Despite the fact that Italy social security is a complicated system it is very beneficial and well above many social security systems around the world. The fact that it encourages globalizations is a plus. The current reforms are welcome and more should be done to reverse the current demographic situation in the employment industry. More reforms are needed to encourage people to contribute their graceful years to productive work.
Work cited
ISTAT, “The state of affairs of the country - Annual report 1999”, 2000.
Lei Delsen, Geneviève Reday Mulvay, “Graduale Retirement in the OECD Countries”, Dartmouth, 1996.
OECD. Pensions at a glance 2009: Retirements –Income systems in OECD countries. Online Country Profiles, including personal income tax and social security contributions Italy. Retrieved 5th May 2011, http://www.oecd.org/els/social/pensions/PAG
U.S Social Security Administration. Office of Retirement and Disability Policy. Social Security Programs throughout the World: Europe, 2008. Retrieved May 5, 2011, http://www.ssa.gov/policy/docs/progdesc/ssptw/2008-2009/europe/italy.html
