Financing the future
The growth of long-term savings is a major social issue
As the population ages, retirement provision in the conventional form of “defined benefit” schemes, financed by obligatory levies, now needs to be backed up by additional supplementary schemes. These “defined contribution” schemes are based on life insurance products or investment funds. The purpose of these schemes is to provide future pensioners with income from the savings they have invested during their working life.
This change has led to a major shift in the burden of risk, which is currently borne by society as a whole but will increasingly be transferred to individual investors. This shift means that asset managers have a bigger role and greater accountability in allocating risks and investors’ assets. The growth of long-term savings also calls for better investor education and information, as well as improvements in the quality of the assets offered.
Retirement savings products
The current retirement provision system in France has three “tiers”.
- Mandatory basic retirement schemes
- Mandatory supplementary schemes
- Additional supplementary schemes based on company sponsored retirement savings plans or individual plans.
The first two tiers of the system are pay-as-you-go schemes, whereas the third tier is based on funded schemes.
The third tier covers various retirement savings systems, including two products introduced by the Retirement Provision Reform Act of 21 August 2003:
- Company-sponsored defined contribution schemes (PERCOs), which are retirement savings products designed in connection with employee savings mechanisms. PERCOs offer employees the possibility of using these mechanisms to invest in supplementary retirement provision. The plans' rules can provide for payout in the form of an annuity or a lump sum, with procedures for converting the money saved into a pension. PERCOs are available to all employees, as well as to executives and corporate officers under certain conditions.
- Individual pension plans (PERPs), which are life insurance policies that come with major tax breaks. PERPs are open to everyone and provide a defined annuity on retirement.
Retirement Reserve Fund
The Retirement Reserve Fund (FRR) is charged with the long-term management of the funds allocated to it, holding them in reserve until 2020. The FRR was set up as a central government agency by the Act of 17 July 2001. Its remit is two-fold: to ensure the future viability of the mandatory old-age pension schemes, and farm-workers’ and artisans’ pension schemes, and to support reform of the schemes under France's pay-as-you-go retirement provision system so that they can spread the burdens imposed by demographic changes more evenly over time and between generations.
The July 2001 statue provides for delegation of financial management after a call for tenders. This provision was in an amendment to the act, which the French parliament passed at the suggestion of the AFG.
The FRR is governed by a Supervisory Board and an Executive Board The Supervisory Board has 20 members. The Chairman, Raoul Briet, was appointed by decree. The fund is administered by Caisse des Dépôts et Consignations.
AFG was involved in the creation of the FRR. AFG Chairman Alain Leclair is a member of the FRR Supervisory Board.
You can find more information about the FRR on its website: www.fondsdereserve.fr
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Retirement savings 