How benefits, advances and redemptions are taxed

Roberto retires after thirty years in his pension fund and takes part of the pot as a lump sum. The taxable portion of that lump sum is €40,000. He was braced for the headline 15% withholding, €6,000. The fund keeps €4,200 instead: each year beyond the fifteenth shaved 0.30 points off the rate, and thirty years of membership make fifteen such years.

When a benefit falls due and in what form

The right to a pension benefit arises when the member meets the conditions for a pension under his or her compulsory scheme and has at least five years of membership in supplementary provision. The period drops to three years for someone whose job ends for reasons unrelated to the supplementary pension and who moves between EU Member States.

The benefit is paid as a lifetime annuity and, in part, as a lump sum. From 1 July 2026 the lump sum can reach 50 per cent of the accumulated pot. Advances received and not paid back are deducted when computing the lump sum: a member who has drawn on the position has less to take out at once.

Small positions are an exception. If the annuity obtained by converting at least 70 per cent of the pot would be below half the social allowance, the whole benefit may be paid as a lump sum. INPS publishes the social allowance every year, and the fund runs the comparison when the claim is made.

Defined-contribution schemes may offer other options instead of a lifetime annuity. A fixed-term annuity runs for as many years as ISTAT life expectancy gives at the member's age. Free withdrawals are allowed up to the total of that annuity's instalments that have fallen due and have not been collected.

In a fixed-term annuity the yearly instalment is the pot held on the date of each instalment divided by the remaining years of life expectancy. So the instalment is not fixed: it tracks investment performance, because the pot stays invested until it has been paid out in full.

Choosing between a lump sum and a lifetime annuity does not change the rate: both start from 15 per cent with the same reduction. What changes is the base, since an annuity also excludes the income in letter g-quinquies, and who withholds: the fund for a lump sum, the paying body for an annuity.

A third option, paying out the pot in instalments over at least five years, applies from 31 October 2026. Under all three formulas the pot stays under management with the fund. If the beneficiary dies, what is left goes to the people he or she named when making the choice.

The 15% withholding and the seniority discount

The base is the same for lump sum and annuity: the benefit minus the part matching income already taxed, such as contributions not deducted and duly reported to the fund. For a lifetime annuity, the income listed in letter g-quinquies of Article 44 TUIR is also excluded, where it can be determined.

That base bears a final withholding of 15 per cent, cut by 0.30 points for each year of membership beyond the fifteenth, up to a maximum cut of 6 points. The rate therefore never falls below 9 per cent, a floor reached after thirty-five years of membership.

Final means the withholding settles the matter: the benefit is not added to other income and never comes back on the tax return. For a lump sum the fund the member belongs to withholds the tax; for a lifetime annuity the paying body does, and the fund passes it the data on the portion already taxed.

One year of seniority is therefore worth 0.30 points across the whole taxable base. On a taxable lump sum of €100,000 it means €300 less withholding for every year of membership past the fifteenth.

That is why joining early, even with modest payments, has a tax value of its own. Every period of membership counts towards seniority, even in different funds, except periods for which the member took a full redemption: cashing out the position between two jobs resets the count to zero.

Reading the taxable portion

The withholding does not bite on everything the fund pays. The part matching income already taxed comes off the base, and the typical case is contributions the member did not deduct and reported to the fund within the deadlines seen in the first module. Without that notice, the fund has nothing on which to exclude them.

The fund does the sum, not the member, but it is worth being able to redo it. Before deciding how and when to take money out, ask the fund for three figures: the years of membership it recognises, the undeducted contributions shown by the notices it has received, and the value of the position on the planned date.

Fixed-term annuity, withdrawals and phased payout

The fixed-term annuity, withdrawals and the balance paid to heirs follow the lump-sum regime: the same 15 per cent withholding with the 0.30-point yearly discount, applied by the fund. Choosing one of these rather than a lump sum does not change the rate, only the pace at which the pot comes out.

The phased payout has a regime of its own. On the taxable portion the withholding is 20 per cent, cut by 0.25 points for each year beyond the fifteenth, with a maximum cut of 5 points. Its floor is therefore 15 per cent, six points above that of the other benefits.

RITA, a bridge to the state pension

The early temporary supplementary annuity, known as RITA, pays the pot out in instalments to people who stop working before their pension. It is open to those who stop working, reach state old-age pension age within five years and have at least twenty years of contributions in compulsory schemes. Defined-benefit schemes are excluded.

People who have been out of work for more than twenty-four months and reach old-age pension age within the next ten years can claim it too. The annuity runs from acceptance of the claim until that age. It can cover all of the pot or part of it: the part not used remains available for ordinary benefits.

The taxable portion of a RITA bears the same 15 per cent withholding with the 0.30-point yearly cut. For members who joined before 2007, years before that date count for fifteen at most. Anyone preferring ordinary taxation may waive the withholding by saying so expressly on the income tax return.

To compute the taxable amount, RITA instalments are allocated first to amounts accrued up to 31 December 2000, then to those accrued from 2001 to 2006, and last to those from 1 January 2007. The order matters because each period had its own tax rules, and the fund keeps those accounts.

RITA does not eat into the lump-sum allowance. When working out how much of the remaining pot can be taken as a lump sum or annuity, what was already drawn as RITA is ignored. Someone using it to bridge the years between leaving work and the pension keeps every retirement choice intact.

Advances and redemptions: different rates

While the pot is building, the position cannot be touched, but the law allows three advances. For very serious and extraordinary medical costs for the member, a spouse or children, recognised by public health bodies, up to 75 per cent can be drawn at any time. The 15 per cent withholding with the seniority discount applies.

After eight years of membership up to 75 per cent can be drawn to buy a first home, for the member or the children, by notarial deed, or for renovation work on that first home. Also after eight years, up to 30 per cent can be drawn for any other need.

In those two cases the withholding is 23 per cent, with no seniority discount, on the amount paid net of income already taxed. The contrast with the medical advance is stark: a member with thirty years in the fund pays 10.5 per cent to fund treatment and 23 per cent to buy a home.

Taken together, advances can never exceed 75 per cent of all payments made, severance pay included, plus realised gains. They can be paid back at any time, even through payments above the €5,300 cap: on the excess part the member gets a tax credit equal to the tax paid on the advance, in proportion to the amount restored.

Repayment also rebuilds the base for the retirement lump sum, since advances not paid back are subtracted from what can be taken in one go. For members who have used the fund as a cash reserve, putting the money back before retirement therefore works twice.

A redemption closes all or part of the position of a member who no longer meets the membership requirements. A partial redemption of 50 per cent is available after a spell out of work of twelve to forty-eight months, or when the employer turns to redundancy schemes or wage guarantee funds.

A full redemption is available for a permanent disability that cuts working capacity to under a third, or after more than forty-eight months without work. If the member dies before the benefit falls due, the whole position is redeemed by the heirs or by the beneficiaries he or she named, individuals or legal entities.

In all these cases, death included, the withholding is 15 per cent with the seniority discount. A redemption for any other reason bears 23 per cent on the same taxable base instead.

Losing the requirements does not force a redemption. The member can move the position to the new employer's fund or leave it under management with no further payments, an option that applies automatically if no choice is made. Keeping the position keeps the seniority, and with it the discount on the rate of the future benefit.

Protection differs too. Pension benefits, RITA and the medical advance are subject to the same limits on assignment, seizure and attachment as compulsory pensions. Redeemed amounts and advances for a home or for other needs enjoy no such limit: once claimed, creditors can reach them.

• How many years of membership does the fund recognise, and how many are missing to reach thirty-five?
• Which undeducted contributions appear as reported, and is the record complete?
• Is the money for medical costs, a home or something else, and what rate follows from that?
• Is there an alternative to redemption, such as a transfer or keeping the position?
• Have past advances been paid back before claiming the lump sum?

These rules apply for 2026. Legislative Decree 117 of 19 June 2026, which reorganises income taxes from 2027, repeals the paragraphs of Article 11 on the taxation of benefits, RITA and advances. Anyone receiving a benefit after that date should check the text that replaces them.