Opposition to funded pensions has long been popular in France. Trade unions suspect that they will act as a Trojan horse for Anglo-Saxon capitalism and social welfare policy, which would undermine the country’s solidarity-based pension system. Politicians shy away from using terms like ‘pension funds’.
The government’s announcement in early April of a new regime for supplementary pensions outside Solvency II is significant for four reasons. First is the belated recognition that Solvency II is an unsuitable framework for long-term pension savings. In the discussions that led to the first Institutions for Occupational Retirement Provision (IORP) Directive in the early 2000s, France sought, from the outset, to ensure that the legislation would only apply to second-pillar funds and not to its first-pillar pension institutions.
When the discussion moved to a second IORP Directive, French insurers actively lobbied for IORPs to be subject to capital requirements comparable to those in pillar one of Solvency II. Clearly a better solution for all is for the pension business of French insurers to be subject to a new regime.
Second, France appears to have belatedly recognised that applying Solvency II to pensions assets channels investment euros away from the productive economy, against the long-term interests of beneficiaries and the economy. Given the low levels of equity investment by insurers under Solvency II, there may have been concern in some quarters about the consequences of the lack of a long-term, stable base of domestic institutional equity owners.
French institutional investors should guard against any politicians who covet their assets for investment in areas like infrastructure or direct lending. All institutions should be free to invest assets in the best interests of the beneficiaries, without direct or indirect coercion by government.
Third, the government has realised that if it did not create a legislative framework for pension funds then existing funds would eventually decamp to Belgium or Luxembourg. As IPE has reported, the French regulator has managed to stymie the plans of two domestic institutions. The government realises that it cannot hold against this tide.
Fourth, there is a growing recognition that funded supplementary pensions are part of the solution to the country’s retirement crisis. Agirc-Arcco, the two main first-pillar institutions, face a serious deficit and are to merge into a single regime.
France’s supplementary pension assets are low by any measure, despite the welcome growth in assets in the PERCO workplace savings scheme in 2015, which saw assets increase to €12.2bn. According to the AFG asset management association, this represents around 10% of total workplace pension assets of €117.5bn at the end of last year. The government calculates that assets of about €130bn will be brought under the proposed new regime.
France has a high overall household savings rate, but supplementary pension saving is largely a preserve of the better off. Democratising workplace pension saving would benefit the country. But it would require tax reforms and other ways of increasing coverage, such as auto-enrolment, none of which looks to be forthcoming. As it stands, France looks unlikely to switch to large-scale capitalisation for pensions at any time in the future.
Political leaders might wish to look to Germany for ways to ‘sell’ reforms to a sceptical public. The Riester pension reforms of the early 2000s, achieved by a Social Democrat-led government, were presented as a top-up to the state pension system to maintain benefit levels without increasing the overall contribution level.
For the moment, the creation of a new regulatory regime for a pensions is a significant step for France but one with limited impact without additional measures to increase pension savings.