Observatory

Exercise of optional contribution regime: buy-back periods determine if pre-conditions are fulfilled

10 August 2023

With Message no. 2564 of 7 July 2023, the Italian National Social Security Entity (Istituto nazionale della previdenza sociale, ‘INPS’) provided operating instructions for the exercise of the voluntary contribution option to the contribution-based system exercised at the same time as the application to buy-back periods which determine if the pre-conditions for exercising the option are fulfilled.

In its message, INPS reiterates what has already been clarified in practice, with particular reference to its instructions provided in Circular no. 54 of 6 April 2021. This confirms that if the option to make the voluntary contributions to the contribution-based system provided for in Article 1, paragraph 23 of Italian Law no. 335 of 8 August 1995, is exercised at the same time as the buy-back application, the buy-back periods are relevant for the purposes of determining if the contribution requirements for exercising the option are fulfilled.

INPS also notes that the option to make voluntary contributions to the contribution-based system provided for by Article 1, 23 of Italian Law no. 335/1995, can be exercised during the course of a person’s working life or at the same time as applying for a pension and is subject to the following contribution requirements:

a) less than 936 weeks (equal to 18 years) of contributions on 31 December 1995 (payment of pension benefits exclusively under the contributory regime rules is, however, granted to those who can claim a contribution period of at least 18 years on 31 December 1995, provided they have exercised their option right by 1 October 2001);

b) at least 780 weeks (equal to 15 years) of which at least 260 weeks (equal to five years) are after 1 January 1996;

c) at least one contribution before 1 January 1996.

The operating instructions set out in Message no. 2564 of 7 July 2023, apply in cases in which the person concerned fulfils the requirements for exercising the option to make voluntary contributions to the contribution system provided for in Article 1, paragraph 23 of Italian Law no. 335/1995 (less than 18 years as of 31 December 1995, at least 15 years of which at least five are after 1 January 1996, at least one contribution prior to 1 January 1996), only if the buy-back periods are considered already acquired (e.g. the person concerned reached 15 years of contribution or acquired seniority prior to 1 January 1996 only taking into account the periods subject to buy-back).

The administrative process and procedural instructions on the buy-back application

With Message no. 2564 of 7 July 2023, the INPS provides operating instructions addressed in particular to those involved in the processing of buy-back applications through exercise of the option to make voluntary contributions. The Message also contains instructions on the internal procedures to be followed for buy-back applications, aimed firstly at ascertaining the existence of the contribution requirements to exercise the voluntary contribution option in relation to the contribution-based pension calculation system and identifying the applicable calculation system.

Once the application to make voluntary contributions and buy-back further periods have been submitted at the same time, it is then necessary to check whether the conditions to exercise the voluntary contribution option are met, which determines the type of buy-back that applies.

Therefore, in the absence of contributions prior to 1996, the buy-back fee is determined:

  • with the criterion of the mathematical reserve with reference only to the minimum contribution (one month) necessary for the person to become a contributor on 31 December 1995;
  • with the percentage calculation (ordinary or ‘deemed’ depending on whether it does or does not concern a degree) for the remaining period.

If the requested buy-back period is also decisive for meeting the requirement to be able to exercise the voluntary contribution option (15 years of contribution, of which at least five years after 1 January 1996), the cost is calculated with the percentage calculation (‘deemed’, if required), except for the minimum contribution of one month necessary to acquire the status of person enrolled in the contribution-based regime on 31 December 1995, which is the only one to be calculated with the mathematical reserve criterion.

Fees for buy-back periods

The portion of the fee relating to the buy-back periods which lead to the fulfilment of the requirements for exercising the option (both for acquiring the status of contributor on 31 December 1995 and for reaching the requirement to exercise the option) must be paid in a single instalment, while the remaining cost is charged to the instalments of the payment plan.

In Message no. 2564/2023 INPS gives the example of a contributor who was not a contributor on 31 December 1995 and who, on the date of application, has only 14 years of contributions (obviously from 1996 onwards) and who applies for buy-back for his/her degree course of 4 years (48 months) before 1 January 1996.

Of these 48 months, the minimum contribution must be calculated using the mathematical reserve criterion, i.e. by determining the annual salary portion of the pension that would be due if all 48 months were subject to buy-back using this criterion.

The coefficient corresponding to the sex, age, and contribution seniority reached after buy-back is applied to this value (in the case 18 months – Table annexed to Italian Ministerial Decree of 31 August 2007 – for employees, and 22 April 2008 for the self-employed).

The result must be divided by the number of months (48) or the number of weeks (208 in the case of private employees) to obtain the minimum contribution, which must be paid within 90 days.

Of the 48 months, 12 months are required to enable the voluntary contribution option to be exercised: consequently, the equivalent of 12 months (including the minimum contribution counted with the mathematical reserve) will have to be paid within 90 days in a lump sum and the equivalent of 36 months remaining can be paid in instalments.

Finally, once the lump sum payment has been made, the exercise of the voluntary contribution option becomes irrevocable.

Failure by the person concerned to pay the fee in a lump sum within 90 days from the date of service of the order is considered to be a waiver of the buy-back request, which may, however, be resubmitted at another time.


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