Budget Bill, civil servants: Severance pay to be paid in instalments over a shorter period, but only to one in ten employees

But there is another aspect that the technical report fails to mention. When one unravels the web of regulatory references, it becomes clear that the Budget Law amends Article 12, paragraph 7 of Decree-Law 78/2010 in sub-paragraph (a), relating to severance payments of up to 50,000 euros gross, and sub-paragraph (b), which governs amounts between 50,001 and 100,000 euros. But it overlooks (so to speak) sub-paragraph (c), which deals with severance payments exceeding 100,000 euros gross. These constitute the majority, particularly in the case of old-age retirement; and are therefore not subject to any changes under the Budget Law. For a civil servant under the TFS scheme, for example, a final salary of 37,500 euros gross per year (just over 2,100 euros net per month) is sufficient to exceed 100,000 euros. In 2025, the average severance payment for public sector retirees (including those retiring on the basis of length of service) was 103,000 euros gross, explains the UPB. On this basis, it can be estimated that the progressively shortened timetable will affect around 10 per cent of cases.

To fully understand the issue, it is necessary to reconstruct the complex framework governing severance payments for civil servants. The waiting period begins with the suspension period that separates the end of employment from the receipt of the first instalment. This is provided for in Decree-Law 79 of 1997 (Article 3, paragraph 2), and lasts for 24 months, reduced to 9 months when the pension is paid to those who have reached the age limit or the maximum length of service. The Budget Law, in paragraph 1 of Article 50, deals solely with this second case, reducing the suspension from nine to six months in 2028 and to three in 2029. From 1 January 2030, this period is eliminated ‘in cases of termination of service due to reaching the age limit’.

However, the initial waiting period is merely the first hurdle on the long road to receiving these allowances, which, in the public sector, are paid in annual instalments of 50,000 euros gross, in accordance with Decree-Law 78 of 2010.

The number of years required to complete the work is therefore two for amounts between 50,001 and 100,000 euros, and three for amounts above that.

The measure affects the first instalment, which will rise by 10,000 euros a year from 2031, reaching 100,000 euros from 2035. But, as mentioned, this applies only to severance payments below that threshold. This has a side effect that may have been overlooked: those with a ‘larger’ severance payment (TFR or TFS) will continue to receive it in annual instalments of 50,000 euros, even as the amount of each instalment increases for others.

All this fuss is, of course, down to the straitened state of public finances, in a budget that – in order not to jeopardise the deficit and debt trajectories – is forced to allocate the limited resources available outside the energy and defence sectors to modest and often temporary funding for this or that measure. Conceived in this way, the amendment to the rules on severance pay for civil servants will cost 862 million in 2028–29, and 3.472 billion up to 2036. This is without addressing another issue raised by the Constitutional Court: the failure to index-link the sums in question, which are still pending.

This detail is by no means trivial when prices are volatile. And it is once again the UPB that sheds light on it. In a period of low inflation such as 2016, a gross severance payment of 100,000 euros loses 1,917 euros due to the brief suspension of the first instalment, and 2,841 euros if the initial payment is delayed by two years. But in a scenario such as that of 2021, with high inflation, the tariffs amount to €10,432 in the first case and €13,189 in the second.

For a severance payment of 200,000 euros, the actual shortfall could be 27,959 euros. According to the CGIL, for those retiring today after 43 years of work, the loss is €4,437 if the final salary is €31,400, and rises to €10,586 if the final salary is €10,586. Your wallet will feel the pinch, but the taxman won’t – providing one of the most striking examples of fiscal drag.

The Constitutional Court will have to take all this into account. It will revisit the case at the hearing brought forward to 12 January; and will have to strike a delicate balance between the interests of the public purse and those of the appellants, represented by lawyer Paolo Frisani.