Italy's 2027 Pensions: Tightening of Indexation Hits Incomes Between €42,000 and €50,000
By Google News Personal Finance ·
The revision of the pension indexation mechanism under the Budget Law now before the Italian Parliament will produce its heaviest effects on a well-defined income band: gross annual pensions between €42,000 and €50,000. That is the finding of a simulation by Il Sole 24 Ore comparing the amounts obtainable under current rules with those resulting from the new provisions, net of taxes.
The most significant case involves pensioners with a benefit of €50,000 gross a year. According to the simulation, the estimated loss comes to €535.33 net on an annual basis, equal to about €41 less per month over 13 monthly payments, or 1.47% of disposable income. In gross terms, the reduction in indexation amounts to €757.59.
The calculation rests on an inflation assumption of 3.4%, corresponding to the index acquired by Istat in October and higher than the 2.8% used in the estimates for the budget measure. The final figures will therefore also depend on the rate actually applied for the adjustment.
Note: simulation based on 3.4% inflation and a comparison between current rules and the draft Budget Law.
The penalty remains high even for immediately lower pensions: in the €42,000–€49,000 band, the contraction in net income ranges from 1.3% to 1.38%. Above the €50,000 threshold, however, the loss drops to 1.02% with an increase of just about €1,000 gross a year.
The jump may seem modest in absolute terms, but it is not when very similar pensions are compared: someone receiving a slightly lower pension can bear a reduction more than 35% larger than someone positioned just above that threshold.
Below €42,000 gross a year, the weight of the revision falls significantly, stopping just above 0.4%. The percentage then gradually rises again above €51,000, but to find a loss comparable to that of pensioners with €50,000 in income, one must reach about €83,000 gross a year.
The affected population does not include the majority of pensioners. In fact, 85.8% of pensions fall below the limit of four times the minimum benefit and will continue to receive full indexation. The change affects about 1.7 million people, with a mechanism that begins to bite on incomes around €32,000 gross a year, corresponding to about €1,900 net a month.
Across Italy, pensioners with incomes above €100,000 gross a year number just over 200,000.
The distribution of losses clarifies the scope of the measure: about 947,000 pensioners fall between €40,000 and €50,000 gross a year, while in the €80,000–€90,000 band the number drops to 104,000. The sacrifice is therefore not concentrated solely on the highest pensions.
What mainly drives the differences is the system chosen to calculate indexation. In moving from the band between five and six times the minimum benefit, the recognized percentage falls from 85% to 53%. Under the band mechanism, the reduced share is applied not only to the portion of the pension exceeding the threshold but extends to the entire benefit.
This is what causes the first jump in losses, which become much more substantial once the €42,000 limit is exceeded, creating a discontinuity that penalizes above all those near that value.
The revision of Irpef complicates the picture. The widening of the second bracket from €50,000 to €55,000 produces an offsetting effect, albeit partial, for incomes up to €55,000, with a tax benefit limited to the portion of income between the two thresholds. This intersection explains why a €51,000 pension may feel the tightening less…
Originally published by Google News Personal Finance
