France: Social Security: Compliance: Changes to the general social security contributions
Thank you to our French Partner, GEREP, for providing this article.
The new French government’s executive branch is intending to restore buying power to employees by reducing the gap between gross and net salary with the removal of the 3.15% employee contribution relating to unemployment and health insurance.
This step would be entirely financed by a 1.7% increase in the General Social Security Contribution (CSG). Take someone on a gross monthly salary of 2000 €; after the relevant additions and subtractions, they would end up better off by around 350 € per annum. So, if employees are the winners in this zero-sum game, who are the losers?
CSG versus social security contributions: an adverse game play for pensioners
If unemployment and health insurance premiums only apply to employees, CSG will profit from a much larger base. As it happens, this tax also has an effect on income from capital, property income and income replacement, such as unemployment benefits or old-age pensions.
The latter will see CSG go from 6.6% to 8.3%. A retired couple living on 2500 € per month will therefore see their income reduce by some 500 € each year. However, they can take comfort in the fact that they will no longer have to pay property tax, which will affect 80% of households. This is a measure which, very conveniently, will come into effect “at the same time” as the increase in CSG!
Small pensions will slip through the net
Lower rates will not be affected by the increase in CSG. So, where an annual pension income does not exceed 14 375 € for a single person or 22 051 € for a couple, the CSG (lower) rate remains at 3.8%.
If the lowest pensions for pensioners and the unemployed will escape from the increase in CSG, this will also apply to capital income, which is subject to another reform. The French President’s candidate program actually planned for the implementation of a standard tax rate of 30% on all financial income.
This measure will require some clarification in order to properly understand its impact. Which type of financial income will be affected? What will the lower limits, upper limits or allowances be? And will it be possible to opt for progressive taxation?
Supplementary pension and employee savings plans: double jeopardy!
Arrangements for supplementary pension and employee savings plans will not escape from the clutches of the increase in CSG. On the contrary, they will receive two treats in the process. First, when savings are set up and secondly upon maturity of the life annuity. With regard to Article 83 or PERCOs (collective pension savings plans), CSG will apply equally to participants or to company contributions.
Even though this tax is hidden from the employee, as it is deducted at source by their employer, it is the employee who will pay it as part of the package which goes towards their savings and which will therefore be subject to the 1.7% increase the first time. The second wave hits when savings are released in the form of a life annuity, which is also liable to CSG at the same rate as basic pensions.
Only one single arrangement would benefit from this reform: where you draw a payment from a ‘work time savings account’ (CET) in terms of cold, hard savings (Article 83 or PERCOs) and which today only receives a partial exemption from social security contributions. This would gain from the removal of the 2.4% contribution towards unemployment benefit. Cold comfort when you look at the price paid by employee savings plans towards this reform which appears to be somewhat at odds with the objectives of injecting some vibrancy and initiative into PERCOs.
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