Pir, the ultimate guide to individual savings plans

Is there a way to actively participate in the country’s recovery? The answer is yes, called pir, an individual savings plan. An instrument with two sides (the “traditional” and the alternative) brings together the virtues of finance and the real economy. Why? The purpose of pir is to channel Italy’s private savings (huge: perhaps not everyone knows that it amounts to about 4.4 trillion euros, twice the gross domestic product) to businesses, small and medium-sized ones, in the perennial search for alternative financing channels to banking ones. The inventor of PIRs is Fabrizio Pagani, former head of the Mef’s technical secretariat.

What are individual savings plans?

They are savings programs designed for individual individuals who are tax residents in Italy and who:

must not have, at the same time, more than one savings plan;

must not share the plan with other individuals, even if they are minors (even a minor can be a pir holder);

Must hold the pir for at least five years. The period can be accumulated if one is a pir holder in sequence, without interruption;

A pir also, to be such:

must not contain financial instruments issued in or entered into with parties resident in non-cooperative countries;

must not contain corporate shareholdings that are considered qualified (according to Article 67(1)(c) of the TUIR and Article 1(100) of the Budget Law for 2017);

Finally, an individual investment plan is “pir compliant” if the income from the financial instruments that comprise it does not contribute to the formation of the owner individual’s total taxable income.

The guide to traditional pir

Traditional pir was born in 2017, and it was immediately loved by savers at first sight. In the same debut year, they raised 11 billion euros, rising to nearly 15 billion in 2018. These are the characteristics of the ‘classic’ individual savings plan:

must not exceed €30,000 annually and €150,000 in total;

financial instruments of the same issuer (e.g., shares of a single company) must not exceed 10 percent of the total investment;

At least 70% of the total investment is allocated to qualified financial instruments, i.e., issued by Italian or European companies with a permanent establishment in Italy.

Twenty-one percent (or 30 percent of 70 percent) of the pir set up in 2017/208 had to be invested in instruments issued by SMEs listed in the MidCap, Star, Standard, or Aim Italia segments Borsa Italiana.

The guide to alternative pirs

After the short and not brilliant 2019 parenthesis of pir 2.0, in January 2020, the government constituted alternative pirs, also known as pir “3.0,” designed as the perfect investment complement to traditional plans in the world of unlisted companies (which play such a large part in the Italian economic fabric). For this reason, regulations stipulate that those with a traditional pir can put an alternative one alongside it.

These are the characteristics of third-generation individual savings plans:

the equal investment concentration constraint rises from 10 percent to 20 percent;

the investible limit increases to €300,000 per year and €1,500,000 over the entire duration of the plan.

at least 17.50% of the total investment value of the plan is invested in mid-caps and small-caps;

a minimum threshold of 3.50 percent of the total investment value of the pir is invested exclusively in small caps.

One can invest in these instruments through administered savings contracts, Fia, Eltif, Sis, life insurance policies, and equity crowdfunding platforms.

The tax advantages of IRPs

In their traditional version, individual savings plans allow individuals resident in Italy to:

pay no tax on the first 30,000 of earnings, within the limit of 150,000 euros of investments;

Under two conditions:

allocate 21 percent of the portfolio to non-FTSE Mib stocks;
Keep the investments in the portfolio for at least five years.

In contrast, alternative pir enjoy:

– Total exemption:

From income tax on financial income and capital gains for pir portfolio investments held for at least five years;
from inheritance tax;

– A tax credit against any losses related to investments made by December 31, 2021, the year in which the economic consequences of the pandemic will be measured, for a minimum duration of five years, up to a maximum value of 60 thousand euros (equal to 20 percent of the annual ceiling of 300 thousand euros of investments in this type of instruments) deductible from 2026 in 10 yearly installments by offsetting with F24.