Want to support Global Action on Aging?

Click below:


France May Pass Law Granting Tax Breaks for Pensions




July 2, 2003

Paris - 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.

France's 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.

``A 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 changes.

Prime 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.

By 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 2020.

Debate 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 law.

`Crying Need'

``We 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.

Payments 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.

French 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 Americans' savings.

Life Insurance

Access 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.

The 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 companies.

In the past decade, retirement savings using life insurance has been rising by 17 percent a year, according to UMP deputy Bertrand.

The 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.


Today's 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.

Both 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.''

A 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 contributions.

``We're 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 Finance Committee.

Budget Centerpiece

Raffarin 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.

``If 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.''

Copyright 2002 Global Action on Aging
Terms of Use  |  Privacy Policy  |  Contact Us