Reconciling contributions with a view to retirement
Nowadays, the reality of work is far from being identified with a single, lifelong occupation. Nowadays, in fact, it is very easy for an individual to change occupation frequently. Not only that, it is not uncommon for him to move from one company to another, not to say from one country to another.
At the time of retirement, however, it can be complicated to want to collect all the contributions made during one's career. These, in fact, may be scattered in different institutions and/or funds.
In the following article we provide an overview of contribution reconciliation, i.e. how this tool for collecting contributions works.
Reconciliation of contributions: what it is
Also known as the onerous reconciliation of contributions, the reconciliation of contributions is in fact an institution that allows the reconciliation of insurance periods and the consequent transfer of all contributions paid during these periods at different institutions and/or funds into a single social security management system.
The purpose of contribution reconciliation is to obtain a single old age pension for workers who have paid contributions to different management schemes.
Operation
Introduced by Law No. 29 of 1979, contribution reconciliation involves, in practice, the transfer of all contributions accrued elsewhere during one's working career to a single institution. The latter institution will consider the contributions as having always been paid into its coffers, in order to realise the right to a pension for the worker requesting the reconciliation.
In the reconciliation of contributions, the pension will be calculated according to the management rules of the institution to which the application is made.
Alternatives
The reconciliation of contributions is not the only procedure for recovering and unifying contribution periods and contributions paid elsewhere. There are, in fact, alternatives to it:
- Free cumulation, defined by Inps Circular No. 140/2017, thanks to which the unification of contributions takes place free of charge and allows immediate retirement.
Unlike reconciliation, this procedure requires each management to calculate the pension share with respect to the contributions paid at its location. This means that each management will perform the calculations according to its own rules.
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Totalisation: this procedure is also free of charge, but there is a one-and-a-half year wait to be eligible for retirement.
Contributions paid abroad?
How to redeem periods of work abroad? Is it possible?
The answer is yes: if the work experience took place in a European Union member country, thanks to international cooperation agreements. In this case, it is only necessary to submit an application for the reconciliation of contributions to the INPS, which will take care of contacting the foreign social security authorities.
In the case of occupations carried out in non-EU countries, it is necessary to inquire in advance with the INPS whether there are any international agreements in force with those countries.
The procedure for the reconciliation and unification of contributions paid in foreign countries other than Italy is called totalisation.
Filing an application for the reconciliation of contributions
What are the coordinates for submitting an application for the reconciliation of contributions? Let's look at them together.
→ Who? All workers who have pursued careers without continuity may submit an application for reconciliation of contributions. This means, in the presence of fragmented careers and with contributions paid into different social security schemes.
In fact, at the time of retirement, these professionals will incur the need to implement a procedure for the reunification of contributions paid into different social security schemes during their careers.
→ What? The subject of contribution reconciliation may be all contributions paid. This means that contributions in any capacity within the category of mandatory contributions are considered valid. But not only that, voluntary contributions (e.g. in the case of self-employed persons) and notional contributions are also considered.
→ Where? The application must be submitted to the social security institution where you intend to make the transfer of contributions.
→ When? There is no time limit for submitting the application: there is no deadline: the application can be submitted at any time.
→ How many times? An application for reconciliation may only be submitted once during the course of your insurance life.
Exception: it is also possible to make a second application if it concerns the same administration as the previous application. It is also possible if it relates to a different management from that of the first application, provided that at least 10 years have passed since the previous application.
Conditions
There are special conditions necessary to be eligible for the reconciliation of contributions:
- The main condition sine qua non is that the applicant must not have used the contributions in question for the payment of a direct pension;
- Another constraint is that, in the case of reconciliation in funds other than those of the Fondo Pensioni Lavoratori Dipendenti (Fpld), the applicant may only reconcile with the management in which he is enrolled at the time of the application;
- If the management is different from the one in which he is registered, at least eight years of contributions are required;
- In the same case as the previous one, the requirement of at least five years of contributions applies. This occurs in the case of payments to the Inps Fdlp in the period immediately preceding the date of application.
Economic burdens linked to reconciliation
How much does it cost to reconcile contributions?
The reconciliation of contributions is also called onerous because, unlike totalisation and accumulation, it is a costly practice. This means that it entails financial burdens. It was, in fact, free of charge until 30 July 2010, while it became chargeable with conversion law 122/2010.
The economic burdens involved are:
A sum equal to 50 per cent of the difference between the reconciliation charge and the amount of contributions transferred, to which must be added the annual interest rate of 4.5 per cent.
From what has just been seen, the economic charges associated with reconciliation depend strictly on:
- Reconciliation charge,
- Temporal placement of contributions,
- Gestioni in which the periods subject to reconciliation are placed.
→ In the case of seniority, the calculation is made by mathematical reserve, i.e. by multiplying the pension benefit obtained from the operation by the actuarial coefficients specified by law. These vary according to the management, age, gender and contribution years of the person concerned.
→ If the periods subject to reconciliation involve the contribution system, the economic burden must be calculated taking into account the corresponding contribution rate. This means that the calculation must be carried out by multiplying the remuneration subject to compulsory contribution for the year preceding the year of submission of the application by the contribution rate provided for by the management in which the reconciliation has been requested. The charge must then be related to the period to be reconciled.
☝ To obtain an overview of the amount of the economic burden linked to the reconciliation of contributions, the INPS provides a calculation simulator.
The amount due and the method of payment, however, are communicated in the acceptance letter from the social security institution to which the application for reconciliation was submitted.
Warning! It is not necessary to carry out the reconciliation once the acceptance letter has been received, nor are there any sanctions if you do not complete the process. In fact, if the payment does not take place, the reconciliation simply does not take place.
Free reconciliation
The reconciliation of contributions is not onerous, i.e. free of charge, only in one case. This occurs if the applicant is a civil servant and was formerly professionally active with a state body, which has since been closed down.
He must therefore have been reemployed at another state body, which has paid his INPS contributions.
Restrictions on free reconciliation
As of 1 January 2021, changes came into force in relation to the requirements for access to free reconciliation. In fact, with the note of 27/04/2020 issued by the Ministry of Labour and Social Policies, some changes were introduced to the Redemption and Reconciliation Regulations. These provide that:
- Free reconciliation for working periods prior to the year 2013 is possible if applicants have accrued at least 15 years of seniority of registration and contribution to Inarcassa;
- Specific parameters have been introduced for the calculation of the pension share with reference to periods unified through the contribution method. The purpose is to take into account the higher charges resulting from the reversibility of survivor treatment.
Reconjunction of contributions: is it convenient?
Reconjunction of contributions is a costly practice, which therefore entails certain expenses. However, it is convenient in specific situations.
The reconciliation of contributions may, for example, be advantageous for workers who earn fairly high salaries at the end of their careers. The latter, in fact, will benefit from the calculation rules.
In addition, with cumulation and totalisation, the reference retirement age is the highest of all managements. In contrast, with reconciliation, there is the possibility of choosing the fund where the application is to be made. This implies the possibility of choosing the management according to the rules that are most convenient for the applicant.
Article translated from Italian