France: Retirement: Second Pillar Pensions

The following information was provided by Gerep, Asinta’s Partner in France.

Pension schemes in France consist of three levels or pillars. The first pillar consists of non-contributory minimum pensions and mandatory state pensions. The second pillar is the mandatory occupational pension provision. The goal of this pension is to supplement the state pension in the first pillar. The third pillar consists of voluntary pension schemes that an employee may opt to contribute to, in order to further supplement his/her retirement pension.

According to some projections, financial reserves for the second pillar pension scheme ARRCO (non-managers) will be exhausted by 2018 and for AGIRC (managers) by 2026.

Employers and trade unions in France came to a national collective agreement (known as ANI, dated October 30, 2015) in the hopes of saving these second pillar pension schemes. The agreement introduced a bonus-malus scheme to encourage people to postpone retirement. Employees who take retirement at their youngest eligible age will see a reduction (or malus) to their second pillar pension. Employees who postpone retirement will instead see a bonus added to their second pillar pension, depending on how much longer they stayed in the work force.

In addition to the bonus-malus scheme, other more expected decisions have been made to “nibble” away at benefits to make up for second pillar scheme deficits. Some of these include extending the AGFF compensation arangement to the third tranche (C) of managers salary and, in 2019, increasing the rate of AGIRC contributions on the B and C income tranches.

The continuing decline of second pillar schemes is unavoidable and is expected to get worse in the years to come, due to changing demographic factors. Forecasts emanating from the pensions board (Conseil d’orientation des retraites) show that a typical non-manager retireing at age 62 today could expect to see 84% of his current income replaced by his pension. The same non-manage retireing in 2050 would see his pension replacing less than 70% of his income.

In view of this trend, Asinta Partner in France, Gerep, recommends the development of the third pillar ‘article 83’ or ‘Perco’ schemes. Although these schemes are widespread in major companies, they are quite rare in SMEs. These schemes offer tax breaks and are an invaluable means of safeguarding an acceptable level of pension.

If you are currently doing business in France or are considering moving into the French market, take a moment to send a message to Asinta Partner Gerep via their contact page. They can answer any questions you may have on the current employee benefits market in France and help to ensure you are providing your employees with the best possible options for their benefits.

Read Gerep’s full article on second pillar pension schemes here.