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May Pass Law Granting Tax Breaks for Pensions
July 2, 2003
- French lawmakers may today adopt a law granting tax incentives to
private pensions, a step the country's biggest bank expects will attract
at least 100 billion euros ($116 billion) in savings over the next decade.
lower house of parliament, the National Assembly, is scheduled to vote on
the bill aimed at shoring up the state pensions system after 3 p.m. in
Paris. The law includes creating tax-deductible retirement plans for
individuals and incentives for a new corporate retirement plan.
new private pensions market is being born,'' said Hugues Colmant, chairman
of the company savings division of BNP Paribas SA, France's No. 1 bank. He
expects the 50 billion euro corporate employee savings market alone ``will
triple in size during the next 10 to 15 years'' as a result of the
Minister Jean-Pierre Raffarin is seeking to prevent the state pension
system from buckling under the burden of an aging population and shrinking
workforce. BNP Paribas and Axa SA, Europe's second-largest insurer, may be
among beneficiaries of the law as the French take out new retirement plans
either individually, through their company, or both.
2040, a third of the French population will be drawing a pension, compared
with one fifth now. The government estimates that without change, the
state pension system faces deficits of about 50 billion euros a year by
over the bill has centered on the government's plan to lengthen the
mandatory contribution period for workers, which prompted more than five
weeks of strikes and protests across France. Yet lawmakers say that the
incentives to invest privately are an equally important element of the
have one of the highest savings rates in the world and there's a crying
need to create a savings product allowing people to save for retirement,''
said Xavier Bertrand, a deputy from Raffarin's Union pour un Mouvement
Populaire party and the National Assembly Finance Committee's secretary in
charge of the pensions bill.
from state funds will drop to an average of two- thirds of a worker's
salary in 2040 from about 78 percent now, under the new law, adding to the
need for individuals to provide for their own retirement. The bill creates
individual pension plans to which anyone can subscribe and turns an
existing 10-year company savings program into a retirement savings vehicle
that pays out annuities.
savings rates this year will be the fourth-highest as a proportion of
households' disposable income among 21 members of the Organization for
Economic Cooperation and Development after Italy, Belgium and Portugal,
the Paris-based body estimates. The 12 percent savings rate the OECD
predicts for French households this year is almost triple its estimate for
to private pensions in France is limited chiefly to civil servants, the
self-employed -- such as lawyers and doctors - - and large companies, who
use it for senior managers. The rest of the population has mainly used
life insurance as a substitute.
law may undermine demand for life insurance once private pensions are in
place. Insurers including Axa, Credit Agricole SA's Predica unit and
Assicurazioni Generali SpA plan to recoup any lost business from life
insurance by developing private pensions products for individuals and
the past decade, retirement savings using life insurance has been rising
by 17 percent a year, according to UMP deputy Bertrand.
bill ``will redraw the map of savings in France, reclarifying the role of
each product,'' said Jean-Pierre Thomas, a partner at Lazard Freres
Gestion and a former deputy whose private pensions bill was passed by
lawmakers in 1997, though never enacted by the subsequent government.
vote will be followed by a debate in the upper house of the French
parliament, the Senate. In the event that lawmakers in both houses agree
on the wording of the bill, the law will return to the National Assembly
for a final vote.
chambers are controlled by the governing UMP party that supports President
Jacques Chirac, who pledged in his re-election campaign 15 months ago to
create ``French-style private pensions.''
second law later this year or early next will detail the terms and
conditions for the new savings products, while the 2004 budget, to be
presented in September, will fix the size of the tax breaks on
talking about a limit of about 10 percent of an individual's gross
income,'' said Philippe Marini, a UMP senator and secretary of the Senate
is billing the tax break for pension contributions as the centerpiece of
the 2004 budget. As France collects income tax one year in arrears, any
drop in revenue won't come until 2005, when the government expects an
economic recovery to take root and narrow the deficit.
the tax breaks on private pensions are big enough, it will be a massive
success,'' said Martine Rapoport, a director of corporate group insurance
at CNP Assurances SA, France's largest life insurer. ``Particularly once
the large retail networks start developing and marketing these products.''