TFR was born 25 years ago, with law n. 297 of May 29 1982. TFR is a modern concept of fund disbursement to private sector employees (and these only) at the moment of termination, for any reason, of their contract. It is basically a debt which the private company contracts with the employee and that will be physically paid at the end of their relationship.
This amount can be partly or totally anticipated in the case of the employees’ special needs (buying a property for example).
This is calculated by summing for every year of service a quote equal and less than the annual salary divided by 13.5. For each year of work, the quote to accrue is given dividing the annual gross salary by 13.5. (13.5 is the average number of the different existing monthly cycles in Italy).
In other words, and from the employer’s perspective, the effective yearly accrual of TFR is 7.41% (100/13.5) of the total amount of the salaries of the employees.
The TFR revaluation is an interesting part. Every year the quote accrued is revalued accordingly to the increasing costs of living. The revaluation percentage is given by a fixed percentage of 1.5 % + a 75% of the current inflation rate. Example: If the inflation rate is 2.5% then the TFR revaluation would be 1.5 + (2.5 *75/100) = 3.375%
The revaluation is of course compounded year to year.
The good thing is that the employee can choose whether to retain the TFR in their Employer company, or give it to a Private Pension Fund (the rates on this will be fundamental to choose the more convenient option).