A few days ago, a client called us thrilled: "I'm finally retiring! Now I'll take out all the capital in my fund and enjoy it," convinced that cashing it all out was the only option. In reality, at retirement there are three completely different paths, each with its own advantages. And many people, like him, don't even know these choices exist.
Is it worth taking the whole lump sum?
When you think about your pension fund, it's natural to picture a nice pot of money withdrawn all at once. It depends. If your accumulated capital is modest, you can withdraw it all — 100% in a single payment. In practice, we're talking about capital under €100,000, though the exact figure depends on your age and the timing of the withdrawal. If you've built up more, a limit kicks in: you can withdraw at most 50% of the total as a lump sum, while the other half must be converted into an annuity.
The advantage of taking the full lump sum is clear: immediate liquidity to renovate your home, help your children, or simply feel more at ease. The flip side: once the pension fund is closed, you lose the right to the income-tax benefits and the reduced tax regime (12.5% on government bonds, 20% on other instruments, versus 26% on ordinary investments).
What is an annuity, and who is it for?
The alternative to a lump sum is the annuity — a kind of second pension that tops up the state one: in practice, your accumulated capital is turned into a monthly payment. For how long? It depends. Your capital is multiplied by a conversion factor that accounts for age, gender and life expectancy: the younger you are at retirement, the lower the monthly amount will be — because statistically you'll receive it for more years; the older you are, the higher the payment.
There are several types of annuity, and you can choose the one that fits best:
- Simple life annuity: the payment continues for as long as you're alive, then stops.
- Reversionary: on your death, it passes (in full or in part) to a person you've named.
- Guaranteed for 5 or 10 years: ensures payment for a minimum number of years, even to your heirs, should you pass away early.
- With return of residual capital: on your death, beneficiaries receive whatever remains of the original capital.
Every option has a trade-off: greater protection for your loved ones means a lower monthly payment for you. An annuity is particularly useful for those who haven't built up a strong state pension but have saved a lot in their pension fund: in that case, a guaranteed lifelong payment can make an enormous difference to their standard of living.
The third path: leaving the fund open
And here we arrive at the third path, the one very few people know about: leaving the fund open even after retirement. Not cashing out (or not entirely), not converting to an annuity, simply... waiting. To do this you need at least one year of contributions at the time of retirement; if that requirement is met, you can keep your position active for as long as you like.
Why consider this option? The reasons are concrete:
- Ongoing tax benefits: the fund's returns remain taxed at 12.5% for government bonds and 20% for other instruments, versus 26% for traditional investments. Your capital keeps growing in a tax-efficient way.
- Deductions still available: you can still make voluntary contributions and deduct up to €5,300 a year from taxable income — worth remembering that every retiree still has income-tax liability.
- Lower final taxation: every extra year past the fifteenth reduces final taxation by 0.30%, down to a minimum of 9%. Waiting another 5 years saves a further 1.5% on the payout.
- Market flexibility: if retirement lands during a financial crisis, waiting means you don't have to cash out at the worst possible moment — you choose when to withdraw.
This strategy works well if you have other sources of income (rent, consulting work, a state pension) and no immediate need for liquidity. The fund becomes a strategic reserve that grows efficiently.
How do you choose between the three paths?
There's no single right answer for everyone. It depends on your situation: do you have other income? Do you need liquidity? Do you want to protect your spouse? How's your health? What's worth knowing is that you don't have to decide right away: you can leave the fund open and choose the right moment for you. And you can even combine the options — for example, 50% lump sum and 50% annuity.
Next time someone says "finally retired, I'm closing everything out," you could always reply: "I'm keeping mine open — it keeps working for me." If you want to work out which strategy suits your personal situation best, we're here to think it through together. No rush, no pressure: just a conversation to understand what makes sense for you.
Glossary
- Life annuity: a benefit that turns your capital into a periodic payment (monthly, quarterly or annual) received for the rest of your life. The amount is calculated based on how much you've accumulated and your life expectancy. Example: with €100,000 at age 67, you might receive around €350-400 a month for as long as you live.
- Social allowance (assegno sociale): a welfare payment from Italy's INPS for citizens in financial hardship. For 2025 it's worth around €538 a month. It's used as a reference to determine whether you can withdraw your entire pension fund as a lump sum or must convert part of it into an annuity: below certain capital thresholds (around €80,000-90,000), you have full freedom.
- Conversion factor: the number that turns your capital into a monthly annuity, calculated by insurance companies based on age, gender and the life expectancy of the Italian population. The younger you are, the lower the factor (because the annuity will need to be paid for more years); the older you are, the higher it is. Practical example: at age 65 the factor might be 0.065, so €100,000 × 0.065 = €6,500 a year in annuity, around €540 a month.
