Financing the future – Overview

Livre Blanc – L’Epargne Retraite – December 2016AFG LivreBlanc Epargn Retraite Couverture
The AFG published a White paper, result of its works on retirement savings. These reflections led by Philippe Setbon, member of the Strategic Committee and Chairman of the AFG Savings Solutions Committee, resulted in the preparation of this “Epargne Retraite” white paper, which lists the current arrangements and proposes to improve them.

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.
Among the proposals to increase employee savings that were presented to the candidates in France’s presidential election in 2017, AFG advocated a tax system that encourages long-term saving, which helps finance economic activity.
PERCOs ( Company-sponsored defined contribution schemes) in particular are a safe way for employees to increase their retirement savings with the help of their company. The priority must be to continue developing PERCOs so as to give young employees in particular greater access to these schemes and to channel savings towards companies, notably small and medium ones, so that they can grow and create jobs.