Sooner or later, every employee in Italy faces a choice that looks technical but has very concrete consequences for their future: where to direct their TFR, the end-of-service allowance the company sets aside each year. Leave it where it is, or move it to a pension fund? Here are the criteria to decide with awareness.
What happens if you leave the TFR in the company?
If you do nothing, the TFR stays in the company and is revalued each year by a formula set by law: a fixed 1.5% plus 75% of inflation. When inflation is low this means very modest growth; when inflation is high it only partly protects your purchasing power. It's a prudent, predictable solution, but it rarely makes the capital truly grow.
Then there's taxation: when paid out, TFR kept in the company is taxed at a rate tied to the average of your recent years' income, typically starting from 23%.
What changes with a pension fund?
By directing your TFR to a pension fund, the same flow is invested in the markets along a line you choose, based on the risk you want to take and how far away retirement is. But the most underestimated advantage is fiscal: returns are taxed at a reduced rate and, above all, the final benefit is taxed at a rate starting from 15% that falls to as low as 9% after many years of membership.
For the same contributions, the gap between 23% and 9% taxation is money that stays in your pocket, not the taxman's.
The often-decisive factor: the employer's contribution
Many contracts provide that, if the employee pays a share into the pension fund, the company contributes too. It is, in effect, additional pay you give up by staying put. When this contribution exists, the pension fund is almost always the more advantageous choice.
The questions to ask before deciding
- How many years to retirement? The longer the horizon, the more it makes sense to invest and let time do the work.
- What is my income? Contributions to the fund are deductible up to €5,300 a year: the higher your tax rate, the bigger the immediate tax saving.
- How much swing am I willing to accept? Funds offer lines from the most prudent to the most dynamic: the choice should match your peace of mind. Here we explain how the risk lines differ.
- Will I need liquidity soon? A pension fund allows advances in specific cases, but it's a tool designed for the long term.
The TFR choice isn't lightly reversible: once directed to the fund, it doesn't go back to the company. That's exactly why it's worth approaching it with a comparison on real numbers — yours — rather than on vague impressions.
TFR in the company or in a pension fund: what changes?
| TFR in the company | Pension fund | |
|---|---|---|
| How it grows | Revalued by a formula set by law: a fixed 1.5% plus 75% of inflation | Invested in the markets, along a line you choose |
| Tax on the payout | A rate tied to the average of your recent years' income, typically from 23% | From 15%, falling to as low as 9% after many years of membership |
| Employer contribution | None: it is pay you give up | Provided by many contracts, if you pay in your own share too |
| Tax deduction on contributions | Does not apply | Up to €5,300 a year |
| Risk | Prudent and predictable | Depends on the line: from the most prudent to the most dynamic |
| The choice | It is what happens if you do nothing | It has to be made: once directed to the fund, the TFR doesn't go back to the company |
