Updates and reforms
The retirement age for state pensions will gradually rise from 60 to 62, depending on a person's date of birth and the amount of years that person has contributed to the national social security fund (40 years; 41.5 years if born in 1952 onwards)
The age at which an employee can retire with a fill-rate pension will gradually rise from 65 to 67, although employees can work for as long as they wish without being forced out of their jobs and can get an increase in their pensions
Employees who started working at a very young age, who are disabled, or who have worked in an unhealthy or physically demanding environment are able to retire at a younger age
Companies are given subsidies if they hire and train employees older than 55
By 2035, an employee born in 1973 onwards will have to work 43 years to receive a full pension, rather than the current 41.5 years
The contributions from employers and employees to the pensions system will increase by 0.3% by 2017
Companies have been tasked to set up special accounts for "hardship conditions" at work
French pensions are almost entirely borne by the state, which means public spending on pensions is 14.4 percent of economic output compared to an EU average of 12.9 percent. ($1 = 0.7283 euros)
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Pension System
France's pension system is made up of a public pillar financed on a pay-as-you-go basis, a mandatory occupational system, and voluntary occupational and personal arrangements.
Public Pensions
A public pension reserve fund (FRR) was established by the Social Security Financing Act 1999. The fund will play an important role to secure the sustainability of public finances by cushioning the high burden on the pension system predicted between 2020 and 2040.
It is funded predominantly by social tax on income from estates and investments, surplus sums from the French National Old Age Fund and the proceeds from the sale of certain state-owned assets.
The statutory pension insurance scheme is a compulsory basic social security system, which provides earnings-related benefits for employees in the private sector.
Low-income earners are expected to receive a pension that equals at least 85% of the French minimum wage.
The required number of years to qualify for a full pension has only recently increased to 40 years. However, the required contribution period will further increase to 41 years by 2012.
Employees who decide to keep on working after having reached the statutory retirement age, and having paid contributions for 40 years, are granted an additional 0.75% for every additional quarter.
There are also dedicated public sector pension schemes and special schemes for employees of state and local authorities, employees working in arduous professions and employees in certain branches. Altogether, these special pension schemes cover approximately 500,000 workers and 1.1 million pensioners.
Occupational Pensions
Private retirement income in France is almost entirely based on compulsory systems. In addition to the basic social system, all employees are members of compulsory supplementary plans. Voluntary occupational pension schemes are still only a small part of the market.
Compulsory occupational pension schemes (AGIRC and ARRCO)
The compulsory schemes are known as AGIRC (for executives) and ARRCO (for non-executives), and are based on collective agreements. They offer defined benefit (DB) plans. The AGIRC and the ARRCO schemes merged in 2003. The legal retirement age is 65 for men and women in both systems.
Both systems allow early retirement from the age of 60 without pension reduction if the employee is entitled to a full social security pension (i.e. 40 years of contribution record); otherwise the pension is reduced and the pension is based on a career average formula.
The funds are financed according to the pay-as-you-go system based on employer and employee contributions.
Voluntary occupational pension schemes
French companies are very reluctant to offer employer-financed occupational pension plans to their employees on a broad scale – they are usually only confined to executives.
But to encourage individual savings many companies have set up Company Savings Plans as a tax-efficient savings product for their employees with the option of an additional employer contribution. The five-year savings plan is a very successful, well-established product. A longer-term version (10 years) was introduced in 2001 but in its 2004 reforms, the government amended the life span of the plan 'until retirement', transforming it by this means into a core pension product rather than just a savings plan.
1.Insured pension plans
Voluntary occupational pension plans are usually insured using life insurance contracts.
Once they are set up, general life insurance companies will govern the plans, as the pension assets become part of either the general or a segregated part of the life insurance companies' balance sheet.
2.Long-term Company Savings Plans (PERCO)
This plan was rebranded as PERCO in the 2004 reforms.
The key elements of PERCO are:
- The minimum investment period is 'until retirement'
- The maximum annual company contribution is EUR 4,600;
- The plan has to be based either on an agreement with the union or the works council, or it has to be approved by the employees through a referendum;
- They can be paid out as a lump sum (tax-free) or as annuities (only a fraction of their value is
taxed, depending on the age of the pensioner at the start of his pension);
- During the saving period a withholding tax of 10.3% on annual interest earned applies;
- The company contribution is subject to a flat-rate tax of 7.6%.
Additional sources:
The Organisation for Economic Co-operation and Development (OECD) - http://www.oecd.org
