Operating alongside the mandatory state retirement pension schemes in France there are several voluntary plans, with such acronyms as Madelin, PERCO and PERP.

Since 1st Oct 2020, these schemes have been swept away, and replaced by a new savings product that is more flexible and capable of offering tax advantages.

The 'Plan d’Epargne Retraite' (PER) can be set up by anyone employed or self-employed. There are also a limited number of offers available to those who are retired, but most policies have an upper age limit.

The aim of the plan is to allow the policy holder to build up additional income during their working life and to receive it when they retire.

The PER is offered by banks and insurance companies, which invest the capital deposited in government backed securities, shares and bonds in the financial markets. A portion of the funds is therefore at risk, although the level of the risk is tapered according to the age and profile of the subscriber.

Payments into a PER may be made either as capital lump sum or as regular payments from revenue.

Tax Break

The principal tax advantage is that payments made into a PER are tax deductible, up to 10% of net income (+15% of income for self-employed), or €4,113, whichever is greater. If you do not use all your tax break in one year, you can carry it forward to subsequent years.

The PER is taxed on retirement, at the end of the plan, but as the saver would expect to pay a lower rate of tax on their retirement a tax advantage remains.

In addition, the tax saving made during the life of the plan means that the income saved can be used to invest elsewhere.

Nevertheless, it does mean such policies are likely to be of primary interest to those on a high-marginal rate of income tax. At a 30% marginal rate, it would mean a tax saving of €3,000 for every €10,000 deposited into a PER.

For those on a lower marginal rate of taxation it is possible to decline the tax break during the term of the plan and to opt for it when the funds are withdrawn on retirement, although in such cases the attractions of a PER are far less obvious.

At the end of the term of the plan, the funds can be withdrawn as a capital sum or an annuity, or a mix of both. If the latter is chosen it is taxed as a pension, with 10% allowance, plus social charges of 17.2%, but with an allowance against social charges, which varies according to the age of the saver. For those over 70 years it is 30%.

If the saver chooses capital withdrawal over a pension the payments they have made will be subject to income tax while the interest generated will be subject to a flat-rate capital gains tax of 30% (or by option the scale rate of income tax).

Early Withdrawal

Although capital is locked into the plan until the end of the term, it is possible under certain circumstances to obtain early release. These are notably unemployment, disability of the subscriber or partner, death of the spouse or partner, the purchase of a principal residence, serious indebtedness, or liquidation/bankruptcy.

Relief against income tax would only apply where the reason for terminating the plan was due to an accident of life, unemployment, disability, over-indebtedness or death of the spouse. The interest generated would, however, be subject to social charges of 17.2%.

Designated Beneficiaries

It is also possible with some banks and insurers to open a PER for a child, for whom the funds could then later be unblocked for the purchase of a principal residence. Parents retain the tax exemption for sums paid on behalf of their children under the same conditions as if they subscribed to a PER for themselves.

It is also possible to set up a PER to guarantee a life annuity for a surviving spouse.

Fees

As with any investment product, fees apply, which need to be closely examined. There is no uniform practice that is adopted by the providers, but many will charge a fee on entry as well as for deposits and general management of the funds.

As is often the case, on-line players offer the lowest rates, in most cases less than 1%. High fees payble to some prestigious suppliers are no guarantee that the returns on the policy will be higher. One of the cheapest and most highly rates policies is offered by the on-line bank Boursorama, but others include AMPLI, and MIF Retraite.

Death of the Subscriber

If a PER is not used on retirement, it can be a most useful vehicle for inheritance planning.

As is possible with assurance vie, in the event of death of the saver before liquidation of their plan, it is possible to designate beneficiaries of the plan.

Provided the PER is an insurance based plan, the inheritance tax allowance is €152,000; above 70 years of age it is €30,500. Spouses and civil partners are exempt from inheritance tax.

In such circumstances, the saver would have benefited from the tax savings made from the payments into the plan and, on their death, the proceeds of the plan pass to their beneficiary. Although social charges of 17.2% would be payable on the capital gain, they would benefit from either exemption or a reduction in inheritance taxes.

It is not possible for beneficiaries to benefit from both the tax allowance available under an assurance vie policy and a PER.

Robert Kent, Director of Kentingtons Investment Advisors in France comments that: "It will be interesting to see whether the PER makes any significant impact on the traditional investment route of assurance vie for retirement planning among the French. The tax relief certainly makes it a better buy than, say, an international SIPP for a foreign resident. However, it comes at the expense of mobility, so a PER would fit if you are planning to spend many years in France."

The information given in this article is for general guidance only, and professional advice should be taken before taking out such a policy.