- 3'15 min
Save-As-You-Earn Schemes: the changes announced by the PACTE Law in France
The French Ministry of Finance is hoping to see the total value of assets under management for top-up pension schemes rise from €200 to €300 billion by 2022. The PACTE (Plan d'Action pour la Croissance et la Transformation des Entreprises – PACTE) government bill aims to encourage the development of save-as-you earn schemes, especially in SMEs. It is estimated that only 16% of employees in companies with fewer than 50 employees are covered by a save-as-you-earn scheme. The debates on the government bill began on 5 September. We take a look at the key measures.
Encouraging small office/home office organisations and SMEs
As an incentive for companies to offer such schemes, the corporate social contribution (forfait social) of 20% on profit-sharing will be abolished. This change is expected to apply to companies with fewer than 50 employees for employer contributions to corporate save-as-you-earn schemes (PEE), collective pension savings schemes (PERCO) and profit-sharing agreements in companies with up to 250 employees.
Simplifying pension savings
The government is seeking to facilitate the “portability” of pension savings, for which the assets under management are estimated at €200 billion, between the different existing products (PERCO, “Madelin” policies, personal pension plans (PERP), etc.).
Its idea is to introduce a single Pension Savings Product (PER) consisting of several sub-funds. This innovation should simplify the management process for savers and make their situation easier to understand throughout their careers. The PER will accompany savers throughout their working lives if they change their employer or career.
Each pension savings product (collective pension savings scheme [PERCO], “Madelin” policy, personal pension plan [PERP], etc.) will have three sub-funds: one reserved for voluntary payments, another for the save-as-you earn scheme (incentives, profit-sharing and employer contributions) and the third for compulsory contributions (by employers and employees), which will enable transfers between products. When they leave their company, employees will therefore only have a single pension product to manage.
To encourage employees to take out such products, three provisions are also envisaged: the right to a deduction from taxable income for each voluntary payment made by savers up to the existing limits (generally 10% of professional income); the possibility of a capital withdrawal for savings made up of voluntary payments or derived from pay-as-you-earn schemes; procedures to make it easier for savers to change their pension savings provider during the life of the product.
“Income will remain a particularly pertinent response to the need for additional revenues in a context of longer life expectancy” points out Jean-Luc François, Head of the Individual Pension Savings of Crédit Agricole Assurances.
To facilitate long-term savings, companies will no longer be required to offer a save-as-you-earn scheme (PEE) before setting up a collective pension saving scheme (PERCO).
In addition, the Members of Parliament on the National Assembly Special Committee have proposed that only first-time buyers should be able to release pension savings funds early for property purchases. They also want to see the fees for transferring pension savings contracts from one provider to another capped at 1%.
Simplifying Euro-growth funds
With only €2.3 billion in assets under management, this product has not been as popular with savers as expected when it was launched in 2014. There are plans to offer a simplified version proposing unified returns for all savers.
This type of fund could also be improved by offering longer investment commitments. In this context, insurers would be able to propose a higher remuneration for subscribers who commit to policies with longer terms (e.g. 10 or 12 years). The opportunity to benefit from a “full” capital guarantee when the policy matures would be maintained.
Crowdfunding in the SME Personal Equity Plan
The PACTE law also sets out to increase the number of savers likely to opt for the PEA-PME (SME Personal Equity Plan), which currently attracts just €1.1 billion in assets under management. This securities account, which entitles savers to tax benefits, enables investments in SMEs and intermediate-sized enterprises.
The securities proposed by crowdfunding platforms will now be more broadly eligible for the PEA-PME plan.
Through these schemes, the government is aiming to encourage the French to make a greater contribution to financing the real economy by taking out more profitable, but riskier, savings policies. Will the recently announced measures achieve this goal? Antoine Jolivel, the Public Affairs Manager, is optimistic: “The government is seeking to encourage the French to increase their investments in riskier products – meaning shares – which are essential for the growth of companies. What’s more, pension products seem to be ideally suited to a degree of measured risk-taking as they have longer horizons”.
Jean-Luc François states that “More technical measures are currently being developed, which we must continue to monitor attentively in order to guarantee the success of the Pension Savings Product. Once the reform has been introduced, we will face the challenge of helping policyholders on current schemes to keep up their savings efforts, while also attracting new customers”.
“The Crédit Agricole Group’s dual expertise in insurance and asset management enable it to stand out from the competition and rise to the challenges of the PACTE Law. Our collective pensions development strategy with Amundi has also allowed the Group to anticipate the challenges raised by the new law, which means that we are ideally placed to help companies face up to these regulatory changes” adds Pierre Guillocheau, Head of Collective Insurance at Crédit Agricole Assurances.
It should be noted that the PACTE law is still subject to parliamentary debate and government orders.