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Mitigating The Fear Of "Wasted" Pension Contributions
Expatax.it is dedicated to making tax more understandable for expats and retirees, especially as they navigate through different European countries. Our goal with this article, like others on our site, is to simplify the complexities surrounding pension contributions and pension rights across the EU. Remember, besides the details discussed in this article, you can also utilise our "TAX AI" at the bottom of the page if you have further queries.
Accumulating Pension Contributions Across the EU
A unique aspect of the EU’s pension policy is that expats can accrue pension rights in each EU country they've worked in. This means that upon reaching the retirement age, individuals can receive pensions from multiple countries. So, in a very real sense, contributions aren't "wasted" when an expat works a few years in one country, then in another, then in another still. However, the process, timing and forms for claiming these pensions can vary from country to country. It's recommended to contact the pension authority if you haven't received an application form as you approach retirement age.
Crucial Documentation and The Retirement Age Variation
The types of documents required during the pension application process tend to differ across countries. Common forms typically include identification and bank details. Moreover, the age at which you can legally retire and claim your pension also varies across the EU. As a result, the timing for receiving pensions from different countries can affect the overall amounts granted.
Eligibility Periods and Pension Calculations
Every EU country has a minimum period of work that entitles an individual to a pension. These periods are accumulated across different EU countries based on the "principle of aggregation of periods". Pension authorities calculate the pensions using 'EU-equivalent rate' and 'the national rate', with the higher amount between the 'pro-rata benefit' and the 'independent benefit' being granted.
Through a rather complex calculation - you request it for free from the pension authority of the EU country where you are currently residing, which in the case of Italy is INPS - all these contribution periods are added up together. Note that, when retirement ages differ in the various countries where you've accrued contributions, each "portion" of your pension would start to be paid out to you when you reach retirement age in that specific country. This means that, for a few years, you may receive less than your final full pension.
Pension Payments and Special Circumstances
Typically, the pension amount is deposited into a bank account in the individual’s country of residence within the EU. Those residing outside the EU might need to have bank accounts in the respective countries paying their pension. Furthermore, for invalidity pensions and survivors' pensions, each EU country may insist on conducting separate examinations and arriving at differing conclusions. Since some countries do not offer survivors' pensions, it's prudent to verify their existence in the country where the expat works.
