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France: PACTE would create a unified framework for tax-qualified supplemental savings plans

Health and Benefits
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October 31, 2018

While many PACTE reforms in France focus on helping small and midsize companies grow, the proposed standardization would benefit employers of all sizes.

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Under the PACTE reform project (Plan d'action pour la croissance et la transformation des entreprises), aimed at supporting and encouraging the growth of small and midsize enterprises (SMEs), a harmonized taxation, investment, portability and payment framework would be applicable to all of the different savings vehicles available to private-sector employers.* It would also reduce social solidarity taxes on profit-sharing plans for companies with fewer than 250 employees under certain conditions. In doing so, the government hopes to substantially increase the number of SMEs that offer retirement savings plans to their staff as well as encourage employees to voluntarily save more by making it easier to manage and consolidate savings accrued with multiple employers.

Key details

The bill would create a uniform regime applicable to private-sector, tax-qualified savings plans (plans épargne retraite, or PERs), with the following characteristics:

  • Plan savings would be fully transferable among plan types and fully portable when changing companies (subject to time limitation and transfer fees). This would be based on the creation of three sub-accounts within PER plans for voluntary contributions by the account holder, mandatory employer and employee contributions, and voluntary employer contributions, including profit-sharing payments.
  • Extension of certain characteristics to all plans, such as:
    • Age-appropriate life-cycle funds would be the default investment option.
    • Taxpayers would be able to claim a tax deduction for individual contributions to a PER plan (up to an annual ceiling).
    • Early withdrawals would be permitted for the purchase of the account holder’s principal residence.
    • Account holders would have the option of taking lump sum withdrawals of plan assets based on voluntary individual contributions.
  • The maximum transfer fee would be 1% of assets. No fee would apply to assets from the sending plan if held for at least five years or in the event of the death of the account holder.
  • The market would be open to service providers to encourage competition, ending the link between certain types of plans and providers (e.g., PEREs being sold exclusively by insurance companies while banks and asset managers sell PERCOs).

The proposal would also waive the 20% special social levy (forfait social) on mandatory profit-sharing plans for companies with fewer than 250 employees and on voluntary profit-sharing plans, PERCOs and PEEs for companies with fewer than 50 employees. And the proposal would extend the reduction of the special social levy from 20% to 16% for all types of plans (subject to have the default investment choice set to life-cycle management funds that invest at least 10% of the asset into SME companies).

PACTE was approved by the National Assembly and is expected to be reviewed by the Senate in early 2019. If approved, the new regime would come into effect on January 1, 2020, to give time for providers and plan sponsors to prepare. (Note: Implementation of the PACTE agenda will be based on separate pieces of legislation rather than an omnibus bill.)

Employer implications

The market for supplemental retirement and pension plans is fairly small in France, relative to the size of the life insurance market. The total value of life insurance investments equals approximately 2 trillion euros, 10 times the level of assets held in supplemental retirement accounts. Much of the PACTE reforms are aimed at small and midsize companies, but the proposed harmonization and standardization of the PER regime would benefit employees and employers of all sizes.


Endnote

.* Common plan types include PEEs (plan d'epargne d'entreprise), PERCOs (plan d'epargne pour la retraite collective) and PEREs (plan d'épargne-retraite d'entreprise — referred to as Article 83 plans) as well as those available to individuals (e.g., Madellin, PERP) and type 26 branche products (e.g., Prefon, Corem).

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