How a pension fund works: social impact and benefits

The tax advantages of supplementary pensions

By joining a pension fund, it is possible to put aside sums over the years that are invested and can generate returns. Once retirement age is reached, the worker will therefore be able to benefit from additional income compared to the public pension, while benefiting from tax advantages on the contributions paid. THE payments to a pension fund are indeed deductible of taxable income.

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Although supplementary pensions have notable advantages, participation in these instruments remains rather low in Italy. As highlighted in the latest survey by the Social Security Fund Control Commission (COVIP), as of 31 December 2023, only 36.9% of workers participated in supplementary pension schemes, with a particularly low share in the South and among women. Many young and low-income workers find it difficult to save due to job insecurity and low wages. In addition, a cultural distrust of savings tools and a lack of financial education persist. In some cases, returns may seem too low or management costs excessive, discouraging the adoption of these solutions.

How to manage a pension fund: 5 tips for maximize returns

  • Start early: it is important to start contributing as early as possible to take advantage of what is called “compound interest”. This approach not only allows you to accumulate a profit on the initial capital, but also to gradually increase the value of previous returns. Over time, the effect of this exponential growth becomes increasingly significant.
  • Evaluate the available options: once you understand how supplementary pensions work, there are different financial instruments, including occupational pension funds, open funds and individual pension plans (PIP). Each option presents specificities in terms of flexibility, costs and returns. It is best to choose the plan that best matches your risk profile, that is, your tolerance for the possibility of losing some or all of your invested capital, in order to seek higher potential returns.
  • Keep contributions constant: Although each payment may seem small, over time they accumulate and increase thanks to compound interest, a calculation method that includes not only the initial capital, but also the income generated previously.
  • Benefit from tax advantages: Contributions to a retirement fund are generally deductible from your taxable income, which can provide significant tax savings each year.
  • Monitor and rebalance: it is important to periodically check the progress of your retirement plan and rebalance your portfolio, if necessary, in order to maintain an adequate level of risk, based on your age and your return expectations.

As the Private pension it can support the economy and social welfare

In the first example, British citizens managed to push leaders to disengage from fossil fuels and increase green investments for climate change mitigation. The initiative received a lot of media attention and managed to involve tens of thousands of British citizens who put pressure on their pension funds. Caring retreats is an initiative promoted by the Canadian Armed Forces Retirees Association. A group of former military personnel put pressure on the pension fund in which they were registered for a part of their savings would be invested in social housing projects and the development of local communities.

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