FRANCE - The French government has begun to assess its pensions regime ahead of an official review in 2010. But one pensions industry official involved in discussions says there can only be development of the pensions regime if the government can define what a pensions vehicle is.
Vincent Ribuot, chief investment officer at UMR Corem, a French mutually-owned provider, has been in discussions with working groups at the finance ministry to try and assist next year's review.
However, the major stumbling block which officials are struggling with, if there is to be change or development, said Ribuot, is the French government must finally define what a pension is and what pensions vehicles should be - a move which is likely to upset the existing social market philosophy of business in France.
"There have been discussions to try and define whose job pensions should be. The problem is [the government] does not know whether it should be regulated under the insurance legal framework or social security law. Before even thinking about a level-playing field, we have to have a definition of what a pensions vehicle is in France," said Ribuot.
The French mandatory pensions system is still largely state-driven and made up of first pillar arrangements agreed between the unions and sponsors, as well as a handful of schemes managed through the supplementary Agirc-Arcco. The remainder of plans created to fund income in retirement are voluntary investment plans purchased through mutual and insurance providers, like the DB/DC hybrid delivered to French teachers by UMR Corem.
The Fillon Law enacted in 2003 did allow for the creation of third pillar collective or company-owned pensions vehicles, so individuals could choose to save money each month for retirement.
However, Ribuot believes there is a need to widen arrangements further to be more in line with company-sponsored funded schemes, as seen in the UK, Germany and the Netherlands, if France is to prevent the pensions financial burden from crippling its social security system and to rebuild its economy in the wake of the recent crisis.
"At the moment, Insurance Vie - mutual funds - are the best way to save money for retirement in France. But it is not a retirement fund, it is a capital investment vehicle. It is not a pension, where payments are made each month until you die," said Ribuot.
"The argument we hear is we don't need pension funds, we need the state to take money every month from a salary to finance the public deficit. But [the government] does not know how to do that.
He continued: "So we need companies to do this. And with this money we create the ultimate long-term investors. Pension funds would develop the economy by investing in non-listed companies - the essence of French industry - as well as corporate bonds. We would be building a long-term infrastructure. And we would be doing what the banks do not do."
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