A bill to reform company pensions in France could unintentionally create a retail pensions market.
The market value of the scheme - currently predicted at anywhere between Ffr10 and 50 billion, which according to one analyst means “nobody knows” - could greatly increase as a result.
This will depend on the final form of the legislation. The lower house received Senate amendments to the bill for its consideration last month.
“The idea is that if a company doesn’t provide a scheme, the employee becomes an isolated entity who can shop around other schemes, effectively creating a retail market”, explains Tim Reay of Bacon & Woodrow in Paris. He adds that it could take a few years to develop the market fully.
Robert de Puysegur, in charge of marketing and planning at CDC Gestion, confirms that a retail market could arise, though he suggests it would be prudent to wait until the law is in its final form. “What we have at the moment are life insurance companies supplying this kind of product. The public does not know what to expect from pension funds,” he says.
The company scheme will change the market to some extent, allowing employees to volunteer to make contributions matched by their employer to a pension fund. The schemes should be similar to the US 401K or the German Pensionskassen.
Company schemes in France have until now required all employees to make the same compulsory contribution, explaining their relative rarity.
Any pension fund, Reay says, will be basically an insurance fund. “It puts the money in profit-bearing investments and it bears risk. In France everyone is very risk-averse, so employers don’t want anything other than defined contributions and employees want guaranteed investment returns.”
Reay’s advice to his institutional clients is to “watch the market”.
“It is one of these situations that they shouldn’t ignore.” However, he cautions that most plans will be inherently conservative to begin with.
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