Over the last few weeks you have most likely heard a lot about the Loi PACTE, and you might be wondering what it is and how it affects you and your retirement.
The Loi PACTE has many different aspects to it, but here we’re concentrating on how it has shaken up retirement savings in France and introduced new contrats d’epargne (savings plans).
Up until October 1st 2019, there were various ways to save for retirement, but these could often be quite restrictive. The four contracts on the market were:
- Key Features:
- Restrictions on funds – can only be taken as a life annuity and upon retirement
- Savings can be withdrawn from a PERP in certain prescribed circumstances, and were exempt from tax, but were subject to social security charges
- Not easy to transfer contracts if you moved jobs or changed circumstances, and you would lose tax benefits
With the advent of the Loi PACTE, a new system of savings contracts was introduced on October 1st 2019.
- Key Features of the PERIN:
- At the point of retirement, funds can be taken in a lump sum (capital) OR as regular annuity income without any upper limit
- Transferability for those whose careers are non-linear – you can keep the same PERIN even if you move jobs or sectors, or are without employment
- Self-employed workers can save up to 10% of their taxable income in a PER, plus an extra 15%
- Topped up by voluntary contributions (mandatory contributions have been abolished)
- Payments are deductible from taxable income (the rate is variable)
- Option of withdrawing funds before retirement for the purchase of property (if it’s your principal residence)
If you already have a PERP, Madelin, Perco, or Article 83 , you can now, as of the 1st October 2019, transfer your savings over to the new products.
The ability to transfer PER retirement products
Before, changing assurance vie contracts could mean losing the tax advantages that you had built up over time, and having to pay more tax. Transfers also had to be done within the same company.
Now, it is possible to transfer funds across to another contract that is more dynamic with smaller management charges. In cases of a transfer, the insurer is also obliged to provide enhanced information, at their expense.
In effect, the insurer must inform the policy-holder of an assurance vie at least once a year of their rights regarding the possibility and conditions of transferring the policy. PER contracts may be transferred to other PER contracts, and the cost of transfer is limited to 1%; however, the cost is free if a transfer takes place after 5 years of holding the contract. Unlike standard assurance vie contracts, the transfer of PERs can be done within a company, or between different companies.
The new savings contracts have been designed to be more flexible, more streamlined, and easier for savers, but we understand that it could still be difficult knowing what’s best, especially if you are wondering what to do with your current PERP or Madelin. If you have any questions or worries, contact us for advice!
What is the deadline for applying for old-style contracts?
You will still be able to apply for old contracts like PERP, Madelin, Perco and Article 83 up until 1st October 2020, but it could be in your best interests to think about applying for a new-style PERIN instead – talk to us if you are looking for help or advice.