PIR, is it time for revenge?

Conceived as a tool to bring Italian savings closer to the real economy through the mechanism oftax exemption, PIRs (Individual Savings Plans) never seem to catch on.

The latest Assogestioni quarterly survey, including the PIR report, confirms this trend for this year as well. In fact, in the first quarter of 2023, PIRs totaled 720 million outflows. Of this, 779 million is accounted for by ordinary PIRs compared to the +58 million collected from alternative PIRs for a total funded assets of 19.34 billion euros. Around -144 million also flowed out of the ordinary PIRs in April, bringing the total balance from the beginning of the year to April to -923 million, after a negative figure of -734 million in 2022. If we compare it with another instrument At the Government bonds, loved by Italian savers, should not go unnoticed by the fact that, for example, the BTP Valore has raised over 18 billion euros in just 10 days, while the PIRs have raised 19.34 billion in 6 years, ie since their launch in the year 2017

Because of this, banks and large advisory networks are refocusing on a product suitable for those who care Investments in the Italian entrepreneurial fabric, characterized by small and medium-sized companies, without necessarily giving up the liquidity of the financial markets and actually benefiting from tax breaks.
First of all the Intesa Sanpaolo Group and Banca Mediolanum, With 4.8 and 4.1 billion euros (equivalent to 24.8% and 21.2% of total assets), it leads the ranking of banks for assets supported in the PIR.

Meanwhile, in this first half of the year, those who already believed in the resilience of the Italian price list have been rewarded: indeed, we remember it The Italian Stock Exchange was the best in Europe for the first six months of 2023 (+32.78% of the performance of the one-year FTSE Mib, of which +17.17% since January 1, 2023).

Like all financial instruments, the individual savings plan is not suitable for all savers and expires be taken into account with a view to broader portfolio diversification. Because PIRs are an asset focused on the Italian market, particularly the stock market, this means that they represent only a small percentage of a saver’s investment portfolio and should only be bought when it suits their long-term time requirements (10, 15 or 20 years).
In fact, from a tax point of view, the advantage must not obscure all the rules for the proper management of financial assets, especially the choice of financial instruments that best suit one’s objectives, time horizon and risk profile.

But what is the tax benefit? To understand this, it is helpful to start with the definition of PIR.

PIR: definition and differences between ordinary and alternative

PIRs are medium and long-term investment vehicles reserved for individuals that give the right to a preferential tax treatment provided that at least 70 percent of the portfolio is invested in shares and bonds of Italian companies and the investment in the savings plan is maintained for at least five years. Launched in Italy in 2017, they have the stated aim of channeling personal savings into small and medium-sized Italian companies, with the desired result of stimulating the economy, which is why the plan portfolio is overweight Italian corporate securities.

In detail, in Ordinary PIR At least 70% of the total value of the plan must be invested for at least 2/3 of the year in financial instruments of companies based in Italy or in other EU countries or European Economic Area (EEA) countries, but with a stable capital investment presence in Italy. In addition, at least 25% of this 70% must be invested in financial instruments of companies that are not included in the FTSE MIB Index of the Italian Stock Exchange or equivalent indices of other markets. And at least 5% of that 70% must be invested in financial instruments of companies that are not included in either the FTSE MIB or the FTSE Mid Cap of the Italian Stock Exchange or equivalent indices.

In addition, no more than 10% of the PIR may be invested in any single issuing company.

THE Alternate PIRs They contain a higher proportion, at least 70%, of securities of smaller Italian companies traded on markets with little liquidity (e.g. Euronext Growth Milan of Borsa Italiana) or even not listed on any market. They are therefore more illiquid and risky instruments than ordinary PIRs and for this reason they are aimed at more sophisticated and wealthy investors.

Pre-built and do-it-yourself PIRs

The ways to set up an ordinary PIR are very flexible. Savers can use managed savings tools such as mutual funds, insurance contracts and wealth management, where intermediaries ensure compliance with the conditions necessary to obtain the tax benefit. Alternatively, a do-it-yourself PIR can be set up by opening a custody relationship with an intermediary; In this case, the saver takes on the difficult task of complying with the rules. The most common form of PIR are mutual funds, known as PIR funds or “PIR compliant” funds.

tax benefit

If you keep the tools on schedule for at least five years, the full tax exemption of income of a financial nature from the investment (hence the tax on accrued capital gains, interest and dividends) and from inheritance tax. We remind you that financial income in Italy is generally taxed with arate of 26 percent.

To benefit from the tax exemption, a Limiting the maximum amount each saver can invest in PIR. Each individual can only hold one PIR in which to invest no more than 40,000 euros per year (minimum 500 euros), within a total limit of 200,000 euros. As they are aimed at more “qualified” investors, the maximum investment limits for alternative PIRs are instead higher: €300,000 per year with a maximum total value of €1,500,000. Each individual can only own one alternative PIR (which may eventually be added to an ordinary PIR).

For the alternative PIR, in relation to investments made in 2021 and 2022, there is an opportunity to convert part of the capital losses incurred on financial instruments held for at least 5 years into a tax credit that can be used as an offset IPERF or other due taxes and duties.

Critical points to consider

Ordinary PIRs are investments little liquid and rather risky as they also contain a high proportion of shares and bonds of smaller and unlisted companies. Even shares in a PIR fund, which typically invests in a relatively large number of companies, are still a financial instrument poorly diversified because most securities in the portfolio come exclusively from Italian companies.

Therefore, before preparing a PIR, it is very important to consider the financial risks one faces, ie the potential losses and costs of divesting the investment, as well as the risk of losing the tax benefit if the investment divests before five years have elapsed becomes.

Cost of PIRs

In terms of cost, the products offered by intermediaries that ensure compliance with the rules, such as the PIR funds, are on average more expensive than other products with similar characteristics. This expense could negate the benefits associated with the tax benefit of PIRs and therefore a careful assessment must first be made, including where appropriate the help of your trusted financial advisor.