The French PACTE law : an obligation to manage annuities
An overview of the pre-PACTE Law situation
Retirement savings products in France, both for groups (PERE(Art.83), PERCO, etc.) and for individuals (PERP, Madelin Law, etc.), have existed for a long time. They are characterised by a long savings period (also called the accumulation period) corresponding to the working years of the retirement account owner. Then, after the person retires, they receive pay-outs in the form of a life annuity. In a few cases, account owners are allowed to make early withdrawals; however, the rules are not uniform across all products.
Their number, early withdrawal conditions, and especially their tax rules make it difficult for an individual to manage their retirement accounts. Having assessed the situation, government authorities have realised that these retirement solutions are struggling to adapt to the complexity of their beneficiaries’ careers.
A new product : the “plan épargne retraite” (PER, meaning retirement savings plan)
In its section dedicated to preparing for retirement, the French PACTE Law of 22 May 2019 aimed to unify these different retirement products in a brand-new product called a plan épargne retraite (PER, meaning retirement savings plan), borrowing the best aspects from existing products.
In addition, the new law allows individuals to transfer their retirement savings from an old product to the new PER. Above all, though, the PER gives individuals greater freedom to withdraw capital when they retire.
In practical terms, individuals have been able to get the new product since 1 October 2019. The PER comes in three versions:
- The individual PER: ex-PERP, entered into directly by savers,
- The group PER: ex-PERCO, entered into by companies,
- The category-based PER: ex-Art. 83, entered into by companies for a category of employees.
Each product will have three components :
- Voluntary contributions: contributions by the saver (deductible or non-deductible),
- Remuneration-based savings: employee shareholding/profit-sharing, employer match, vacation days/compensation time off,
- Mandatory contributions: mandatory payments from the employer or employee, or sums transferred upon request from employees.
Part of these attractiveness of these solutions is their consistent tax rules that are more fine-tuned than those for the older solutions. The PER offers tax options at pay-in, for whether or not payments are deductible, and taxes apply to distinct compartments (accumulated savings, capital paid, or capital gains) for capital withdrawals (at maturity or early). Finally, life annuity pay-outs will follow, depending on the case, the tax rules for life annuities earned with or without contribution from the beneficiary. Given the fact that the information is often dense and initial choices can have a big impact.
Generally speaking, the solutions offered require careful consideration and comprehensive advice before you take out a plan. More than ever before, retirement savings and employee savings stakeholders have a role to play.
Consequences of the PACTE Law
The current version of Assurex Rentes allows you to manage annuity pay-outs from the new PER created by the PACTE Law and marketed since 1 October 2019. In particular, the tax aspects of this new product are covered by extra Assurex Rentes settings without any major changes.
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