French government introduced back in 2019 the PER Plan d’Épargne Retraite in France as a complementary retirement savings plan. It is a measure targeting to support the retirement collective fund system.
In this blog, we will give the key information on this topic that you need to know as an expat or foreigner living in France. Let’s start…
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What is PER (Plan d'Epargne Retraite) in France?
It is a long-term savings product designed to help individuals save for their retirement. PER combines the advantages of different existing savings products, such as Perp, Madelin, and Article 83, into a single plan.
It offers greater flexibility in terms of contributions, withdrawals, and investment management, while also offering tax benefits.
PER is available to both employed and self-employed individuals. They can choose between individual or collective plans.
The aim of the PER is to encourage people to save more for their own retirement, and to provide them with better financial security in their later years.
This individual retirement saving plan is very important for French residents. The collective system is France may not be able to support the retiree needs funded only by a decreasing young & active contributors.
Only french residents has the right to own a PER. So if you are a foreigner, but not paying taxes in France, sorry you cannot benefit from it.
Importance of PER retirement savings plan in France
PER retirement plan helps ensuring financial security during retirement years.
The French pension system is based on a collective distribution model. This means that the current workforce contributes to a common pension fund. This common pot pays the benefits of those who are retired.
However, due to an ageing population and increasing life expectancy, the French pension system is facing challenges. The main causes are a potential decrease in the pension for future retirees, and / or extension of legal retirement age.
Therefore, it is essential for individuals to have a retirement plan to complement their state pension and maintain their standard of living during retirement.
What are the different PER types in France?
PER Individuel (PERIN)
This type of PER account is for individuals who want to save for their retirement on their own. It is open to any french resident, regardless of their employment status.
The PERIN allows individuals to make voluntary contributions and benefit from tax advantages. As example: tax deductions on their contributions and tax-free growth on their savings.
Depending on the individual’s age and circumstances, the money can be withdrawn as a lump sum or as a regular income stream during retirement.
PER Collectif (PERCO)
This type of PER account is for employees of a company who want to save for their retirement.
It is set up by the employer and can be offered as a benefit to employees who can contribute a portion of their salary. In addition, their employers may also provide matching contributions.
The money saved in a PERCO plan can be invested in a range of investment options, including stocks, bonds, and mutual funds.
At retirement, the saved money can be withdrawn as a lump sum or in regular payments.
PER Obligatoire (PERE)
This type of PER account is mandatory for employees of a company. The employer is required to set up the account and make contributions on behalf of the employee.
The plan is funded by contributions from both the employer and the employee. All employees in France are required to participate in the PERE plan.
The employer must offer a PERE plan to employees who have been with the company for at least three months and work min. 1,000 hours per year.
The amount of contributions is based on the employee’s salary, age, and length of service.
Advantages of PER in France
First main advantage of PER is the tax benefits it offers:
Contributions made to a PER account are tax-deductible, meaning that individuals can reduce their taxable income by the amount of their contributions. This is particularly advantageous for high earners who want to reduce their tax bill.
Additionally, the money in the account grows tax-free, and withdrawals made after the age of 62 are normally taxed at a lower rate (as most likely your income tax range TMI should be lower).
In few words, your income tax is exempted at the entry but not at the exit.
Secondly, PER is very flexible (similar to an ‘Assurance Vie‘):
You can choose from different investment funds based on your risk tolerance and investment goals. The plan also allows you to make contributions when you want, so you can adjust your savings strategy according to your financial situation.
Thirdly, the PER gives you the opportunity to save for retirement with an employer contribution or match:
This means that your employer can contribute to your retirement savings, which can help boost your savings and give you more financial security in retirement.
Finally, there is an interesting benefit about inheritance:
You can assign a PER beneficiary in case you pass away and the inheritance will not pay income taxes.
Disadvantages of PER in France
The main inconvenient of PER is withdrawals blocking:
Individuals cannot withdraw money from their PER account before the legal retirement age (62 as early 2023, soon 64), except in certain circumstances, such as disability or serious illness.
Early withdrawals made before the legal age, are subject to a penalty and may pay full income tax.
Another constraint of the PER is that it is only available to French residents:
If you are a foreigner living in France, you can contribute to a PER, but only if you are paying taxes in France.
This can be a significant limitation for foreigners who may have to leave France and relocate to another country in the future.
What are the valid reasons to unblock PER funds in advance?
- Life accidents: handicap (you, children, couple), couple’s death, unemployment end of benefits, over-indebtedness.
- Main residency purchase. Even if it is not the 1st one.
Notice that you will not pay income tax (only social contribution tax of 17,2% on capital gains) if the early withdrawal correspond to a ‘life accident’ category.
If it is due to the acquisition of your main home, you will income tax on the contribution you made and pay flat tax of 30% on capital gains.
Our experience and final thoughts about PER
When we were less than 40, at the time we had some many other priorities and retirement seems so far away concern. We were just limiting our contributions to the PERCO (Collective PER) as our companies were proposing to match the amount invested (depends on each company policy).
Additionally, we could monetize the days off or ‘congés payés’ saved in our CET (compte d’épargne Temps). So basically, our PER contributions represented ZERO cash out from our pockets, but we were still contributing to our retirement thanks to our company and CET saved days.
Now that we have crossed the 40 barrier – but still young 😉 – and have extra cash as to invest, we have started to contribute a bit more.
When we will turn 55, it could be a good time to reach out a financial advisor to finetune our retirement plan.
All the best!