Pensions in France fall into five major divisions;
- Non-contributory minimum pension
- Mandatory state pension provision (first pillar)
- Mandatory occupational pension provision (second pillar)
- Voluntary private collective pension provision (third pillar)
- Voluntary private individual pension provision (third pillar).
Non-contributory minimum pension
This minimum pension (Allocation de Solidarité aux Personnes Âgées or Minimum Vieillesse in French) is the first level of the first pillar of the French pension system. It is a non-contributory pension introduced in 1956.
It is targeted at people between 60 and 65 years old who have not been in paid work either for health reasons or because they were carers. It is available to both French and foreign citizens residing in France legally.
In order to qualify a single person must have less than €7,635 and €13,374 for a couple.
In 2010 the annual pension amounts to €8,507 for a single person and €13,890 for a couple.
Amounts paid can be recovered by the state at the death of the beneficiary if the inheritance left is over €39,000.
Mandatory state pension provision
The mandatory state pension is an unfunded contributory pension based on redistribution of contributions from those working to those in retirement. The scheme aims to provide up to a maximum of 50% of the retiree’s income during their highest earning years up to a limit of €35,000 annually (in 2010).
The state scheme is financed by a payroll tax known as “social security contributions”. The rate in 2013 is 15.15% (8.4% for employer and 6.75% for the employee) of pay up to the social security contribution ceiling of € 37,032, and 1.7% (1.6% for the employer and 0.1% for the employee) on the remainder of the salary. Management of the scheme is the responsibility of the Caisse Nationale d’Assurance Vieillesse (National Old-age Insurance Bank).
Mandatory Occupational Pension Provision
The mandatory occupational pension is a defined contribution scheme that is mainly based on redistribution, but also has elements of investment. The aim of the schemes is to supplement the state pension increasing income of retirees from the 50% level to between 70% and 80%.
There are several schemes, the main ones being: – Arrco (for non-managers) – Agirc (for managers) – Ircantec (for civil servants) One third of this contribution is paid by the employee and the other two thirds by the employer.
|First tranche of income||3%||none||1.5%|
|Second tranche of income||8%||7,7%||4.76%|
|First tranche of income||4.5%||none||3%|
|Second tranche of income||12%||12.6%||9.24%|
- First Tranche is up to €35,000 in 2011
The schemes pay out based on a points system. The schemes are managed so that they are non-loss making. Surpluses are invested in the financial markets and are maintained as a reserve fund. This reserve fund amounts to approximately €50 billion in 2010.
Voluntary private provision
The collective retirement savings plans (plan d’épargne pour la retraite collectif) were introduced by François Fillon in 2006. They are company plans that enable employees to get tax credits when they contribute to these funds.
Employee contributions are strictly regulated. The following is a list of the sources of funds that may be used to contribute tax-free to these funds:
- Profit sharing
- Voluntary payments up to 25% of total gross earnings
- Company contributions up to 16% of the social security limit (€35,000 in 2011)
- Transfers from other company savings schemes
All the contributions (employee and employer) are not considered as income for income tax purposes. At retirement the capital is not taxable (income tax), however the annuities are taxable as income.
The popular retirement plans (plan d’épargne retraite populaire) were created in 2004. 10% of annual income may be invested tax-free in these individual funds.
Pensions Reserve Fund
Main article: Pensions Reserve Fund (France)
The Pensions Reserve Fund (Fonds de réserve pour les retraites) was set up in July 2001 with the aim of using funds from privatisations of state holdings to finance the future shortfall of the state PAYG system. The target was to create a fund totaling €150 billion by 2020. As of September 2010, the total funds managed by the fund amounted to €35.7 billion.
- ^“The French social security system : organisational structure, financing, scope and coverage”. Cleiss.fr. Retrieved 22 April 2011.
- ^“French Social Security Contributions and Organisations”. Angloinfo. Retrieved 8 June2016.
- ^“(french)”. Urssaf.fr. Archived from the original on 27 April 2011. Retrieved 22 April2011.
- ^“Home – Fonds de réserve pour les retraites”. Fondsdereserve.fr. Retrieved 22 April2011.
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.