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  • 2018/06/28
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The PACTE bill explained

The Action Plan for Business Growth and Transformation (Plan d'Action pour la Croissance et la Transformation des Entreprises, or PACTE) presented on 18 June to the Council of Ministers contains several measures relating to the development of retirement savings, employee savings and employee share ownership.

What are the major changes expected in each of these three areas?

What opportunities exist for savers and companies?

 

 

 

The three major goals of the bill

  • Retirement savings reform
    Simplify and standardise the existing retirement savings products, while financing the economy and offering savers a higher expected return in a competitive framework.
  • Employee savings for all SMEs/micro-businesses
    Create the best possible conditions for more widespread availability of employee savings schemes at all French companies, including the smallest ones, with a signature measure to reduce the employer contribution.
  • Development of employee share ownership
    Boost employee share ownership in both private and public companies.

 

 

PLF: Finance bill (Projet de Loi de Finances). PLFSS: Social security finance bill (Projet de Loi de Finances de la Sécurité Sociale). 

Retirement savings reform

Objective of the reform

  • Redefine retirement savings to make them attractive again at a time when employees are more mobile and have non-linear careers, while also financing the economy..
  • Create a retirement savings plan that combines the following products: PERCOs (collective retirement savings plans), PERPs (individual retirement savings plans), MADELINs (individual plans for the self-employed) and PEREs (company retirement savings plans). This new plan will follow savers throughout their career even if they change employers or professions.

The three key points of the retirement savings reform

  • Offer a higher expected return: widespread adoption of life-cycle management, which will be the default option if the saver does not indicate a preference. Life-cycle management is an investment strategy that takes into account the saver’s investment horizon.
  • Improve attractiveness at a time when employees are more mobile, through simplification and the potential ability to transfer retirement savings from one product to another.
  • une Align the rules covering withdrawals from existing retirement savings products and the way they are taxed to make them easier to understand.

 

PER

It will now be possible for savers of retirement age to choose whether to receive payouts as a lump sum and/or an annuity and for funds to be withdrawn early to buy a primary residence. These changes apply to all retirement savings products (with the one exception of compulsory PERE contributions).

Taxation will be standardised (on enrolment and withdrawal) and this should make existing retirement savings products attractive again, in particular by allowing all voluntary payments, no matter the individual or collective product, to be deducted from the income tax base. Each retirement savings product will have three components: voluntary payments, employee savings (compulsory and discretionary profit-sharing and matching contributions) and compulsory contributions (employers and employees).

The employer contribution will be reduced to 16% while the retirement savings plan will require life-cycle management by default with a minimum of 10% invested in equity savings plan/SME securities.

 

 

The shared characteristics

 “The revitalisation of the pension market, with retirement a key concern for clients in our networks, is unquestionably a major opportunity for the Group, which already has recognised positions in both individual and collective products. Now we need to carefully identify the challenges of this reform to make sure that the Group’s clients will benefit”, states Jean-Luc François, Director of Individual Retirement Savings at Crédit Agricole Assurances.
 
By combining its dual expertise in insurance and asset management, Crédit Agricole Group has distinct advantages to help it meet the challenges of the PACTE law. The ‘Ambition Retraite Collective’ (collective retirement goal, or ARC) initiative, launched two years ago by Amundi and CAA, allowed the Group to anticipate the challenges of the new law, which puts us in a position of strength to support companies as they navigate these regulatory developments”, add Pierre Guillocheau, Director of Collective Insurance at Crédit Agricole Assurances, and Xavier Collot, Director of Employee and Retirement Savings at Amundi. 

 

 

Employee savings for all SMEs/micro-businesses

The main measures :

  • For companies with fewer than 50 employees, elimination of the employer contribution for all amounts paid in (compulsory and discretionary profit-sharing, matching contributions)
  • For companies with fewer than 250 employees, elimination of the employer contribution for discretionary profit-sharing
  • For all companies, promote the development and adoption of employee savings plans (standardised annual account statement, better information, etc.)

Other measures :

For companies with more than 50 employees, participation will be mandatory starting in the financial year following a period of five consecutive years in which the company has a workforce of more than 50 employees.
Agreements will be reached to encourage the different industries to negotiate a discretionary or compulsory profit-sharing scheme or an employee savings plan to ensure that all companies benefit (no later than 31/12/2019).

For simplicity’s sake, it will no longer be necessary to have a company savings plan (PEE) in order to set up a PERCO.

If a company's legal status changes, any profit-sharing agreement that had been set up would remain in place.

A partner in a civil union with a business owner will also be a beneficiary of the business’s employee savings schemes.

 

Eliminating this charge (the employer contribution for SMEs) will enable more French people to benefit from employee savings schemes, currently open mainly to employees of large companies. This measure could affect up to 10 million employees and will be a signature aspect of the PACTE Law,” notes Xavier Collot, Director of Employee and Retirement Savings at AMUNDI. 

 

Development of employee share ownership

The main measures:

- Option of making a unilateral matching contribution to the PEE. If an employee does not contribute, the company can now make an equal allocation to all employees through the employee share ownership funds.
- Employer contribution reduced to 10% (from 20%) for the matching contribution made by the company to the employee share ownership schemes.
- For all state-owned companies: in the event of a sale by the government, 10% of the securities must be sold to employees.

Other measures:

- Expansion of employee share ownership to unlisted companies and companies involved in leveraged buyouts (LBOs).
- More flexibility in the procedures for offerings to employees in simplified joint stock companies.

The government has set an ambitious target of having employee shareholders hold 10% of the capital of French companies by 2030, a strong motivational and unifying force,” says Xavier Collot, Director of Employee and Retirement Savings at AMUNDI. 

 
This article was prepared on the basis of the bill presented to the Council of Ministers. It outlines the general principles. A number of points still need to be clarified and will be finalised through orders and implementing decrees.

To find out more, please visit the pages dedicated to the PACTE bill, in particular on the website amundi-ee.com: https://www.amundi-ee.com/entr/Local-Content/Pages/Le-projet-de-loi-PACTE2/Le-projet-de-loi-PACTE-Plan-d-Action-pour-la-Croissance-et-la-Transformation-des-Entreprises

 

 

 

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