Italy caps pension fund cash-outs at 50% and adds flexible withdrawal options

Effective 1 July 2026 Italy’s pension reform replaces the traditional lifetime annuity with new flexible payout choices. Retirees may withdraw up to half of their accumulated pension capital in cash, while the remainder can be distributed through defined‑term annuities calculated on life‑expectancy tables or through freely‑determined withdrawals that cannot exceed the value of future scheduled payments. The reform originally slated a 60% cash‑out ceiling, but a decree on 1 May 2026 restored the limit to 50% to preserve the system’s insurance function.

The law also introduces a fractional payment scheme, delayed until 31 October 2026, and sets distinct tax rates: 15% (reduced by up to 0.30% per year after 15 years, minimum 9%) for defined‑term and free withdrawals, and a higher 20% base (reduced by up to 0.25% per year, minimum 15%) for pure fractional payouts. An exception allows full cash withdrawal when the projected annuity would fall below half the basic social pension. Funds must adapt their systems by 31 December 2026, as mandated by the COVIP authority.