Wealth planning in France - "PER/PERP": how to make the right choices?
Article up to date on 1 October 2020, drawn up in accordance with the legislation in force in France and applicable to individuals resident for tax purposes in France.
To meet the fundamental challenge of preserving income at the time of retirement, the PACTE law created the "Plan d'Epargne Retraite" (PER - Retirement Savings Plan). The PERP, "Plan d'Epargne Retraire Populaire" (Popular Retirement Savings Plan), the predecessor of the PER, does not exist anymore since October 1, 2020. Savers can keep their existing envelopes or transfer them to a PER. How to choose? Clarification with Olivier Antonelli, Wealth Engineer at SOGECAP, Societe Generale's life insurance company.
When should I take out a retirement savings plan?
Olivier Antonelli: The answer is simple: at any time! As a reminder, the sums invested in a retirement savings plan are deductible up to a limit of 10% of income, capped at EUR 32,000, for a salaried employee. The higher the marginal tax bracket is, the higher the tax interest will be at the start of the PER. It is possible to use the unused ceilings from the previous three years. At the time of retirement, the sums withdrawn will be taxed at a potentially lower tax rate than that applied during the savings phase (it depends on the client's situation, the income he or she might otherwise have). Beyond the interest in terms of tax in the investment phase, the main objective is indeed the constitution of savings for retirement, which will supplement pensions and other income, whether from real estate or capitalization envelopes such as life insurance. These savings, which are earmarked for a specific purpose but remain personal, will thus strengthen and secure the individual pension strategy.
Why take out a PER if you already hold a PERP?
Olivier Antonelli: Even if the "PACTE"* law, which created the PER, aims to harmonise the schemes, it is quite possible to combine the two envelopes in order to benefit from their respective advantages. If the PERP allows a limited capital outlay, but under very favourable conditions, a saver may find it interesting to open a PER to benefit from a total capital outlay. The client must ask his or her private banker about the terms and conditions of the capital outlay. Other interest of the PER: to reserve the possibility of recovering its savings for the acquisition of its principal residence, without other constraint. One could finally consider to mobilze the tax savings realized thanks to one's PERP to feed a PER for the benefit of his spouse, in a strategy of protection of the family.
What choices are available to the member when he or she retires?
Olivier Antonelli: It is at the time of retirement that the use of accumulated savings becomes concrete. The PERP is intended to be converted into an annuity (the capital outlay is limited to 20%). The PER, as for it, proposes very diverse solutions, in order to adapt to the personal situation of each one. The life annuity can be modulated by providing for regular resets, or by anticipating greater needs, either in the early years or at a given maturity. A reversion to the benefit of the spouse can also be provided for. Alternatively, or in addition to the provision of additional income, there may be an interest in receiving a capital sum. Here again, the PER differs from the PERP. The new system makes it possible to increase the capital outlay beyond the 20% provided for in the PERP. In fact, it is necessary to estimate the share of capital and the share of income adapted to each situation. This choice must be made on the basis of objective criteria and involves determining the real need for additional income to ensure one's standard of living. If one chooses to go out as capital, how will the capital received be invested and what are the expected returns? With what regularity? For example, an investment in rental property is an interesting source of income, but you must be willing to invest in the management of the property, the selection of tenants, ... and you must anticipate vacancy periods. In addition, a capital outlay is subject to double taxation:
in general, the single flat-rate withholding tax ("Prélèvement Forfaitaire Unique", PFU), at a rate of 30%, on the products (or optionally on income tax);
-and to income tax for the capital portion made up of deductible voluntary payments.
In short, at the time of retirement, when it is necessary to decide on the terms of exit, the PER makes it possible to consider all the possible scenarios in order to make the best choice with regard to one's patrimonial, family and personal situation..
What happens to my savings in the event of death?
Olivier Antonneli: It's important to understand what happens to your savings in the event of death before you retire. On the contract enrolment form, the member designates one or more beneficiaries in the event of death (and can change them at any time). He or she has therefore, as he or she could have done on his or her life insurance policies, designated the persons who will receive his or her savings. In concrete terms, the beneficiaries will be able to choose to receive a capital or an annuity, under generally favourable conditions. It should be noted that the death of the spouse may, under certain conditions, allow the capital release of his or her own PER or PERP. In this case, the benefits are exempt from income tax and sometimes social security contributions. In this case, the retirement savings can complement the protection of the surviving spouse. What happens in the event of death once the capital is converted into an annuity? If the pension has been provided with a reversion, the income will continue to be paid to the person receiving this reversion. The same applies if the client has opted for an annuity option with guaranteed annuities: in this case, the client has chosen to be assured of receiving a fixed income for a defined period of time. Should the client die before the end of this period, the reversionary beneficiary would continue to receive the same amount.
To conclude, what is your synthesis on the PER?
The PER is a envelope that allows you to build up savings under favourable conditions during the investment phase and to give yourself an infinite number of options when you retire.
Your Private Banker is at your disposal to analyse your situation and propose a tailor-made strategy according to your objectives and saving capacity.
* "Plan d’Action pour la Croissance et la Transformation des Entreprises"
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