From pillar to PEELT
France could take an important step towards individual capitalised retirement savings with the introduction of a long-term equivalent to the company savings plan, the ‘Plan d’Epargne Entreprise Long Terme’ (PEELT), according to the recommendations of a report presented to prime minister Lionel Jospin.
The report, by inspector general of finance Jean-Baptiste de Foucauld and parliamentarian Jean-Pierre Balligand, entitled ‘L’Epargne Salariale Au Coeur Du Contrat Social’ (Employment savings at the heart of the social contract), proposes that company savings plans could be a vital pillar of support to the country’s retirement system. “Epargne salariale can and must nevertheless play a supplementary role to the basic and complimentary state systems,” the report says.
The PEELT, it proposes, could either have a duration of 12–15 years with capital available at the end in lump sum form, or 10 years with capital released in portions as with the Plan d’Epargne Entreprise (PEE).
Amendments are also proposed to the contributions mechanism which would see an additional tax ceiling of Ffr25,000 (e3,800) a year freed up on top of the existing PEE level of Ffr22,500 – giving an annual contributions limit of Ffr47,500, to meet the long-term savings objective.
And while the report notes that any further changes to taxation savings should be carefully considered, the accent is firmly on encouraging diversified investment for the long term.
“Any extension of social and fiscal exonerations must be envisaged with prudence , due to the fact that the form of saving is already largely tax free. This should be carried out through gradual changes with more marked tax advantages for more diversified and longer term investment.”
However, the report notes this is not an attempt to implement a transition from pay-as-you-go (repartition) to capitalisation – pointing out that the collective problem to be resolved is a stabilisation of the PAYG regimes. “This is why the mission rejected the hypothesis of savings which would only be available at the moment of retirement via a series of pension payments,” declares the report.
By lengthening the duration of immobilised funds in a longer-term vehicle, Balligand and Foucauld suggest that epargne salariale could evolve into a product they dub ‘epargne temps’ which would allow the beneficiary to “enjoy periods of free time remunerated during the length of his/her life, retirement being a modality among others”.
At same time the report suggests the collective and social character of the Epargne Salariale should be reaffirmed and made more explicit and with the aim that PEE contributions should not vary depending on job title.
The PEELT, which would be a voluntary collective agreement offered to all employees concerned, should also be led by employee choice over whether part of their tax revenue should go towards saving or whether direct participation would be the preferred investment method, suggests the report.
While the plans would benefit from the same portability as the PEE, the report points out that as the schemes are destined to be “time-consuming projects” so they must obey a double preoccupation with returns and risk diversity to optimise payments in the long term. To this end, it is stipulated that the fund should hold on average at least 50% in equities for the whole of the savings period.
Furthermore, the funds would be untouchable for the agreed duration, except in cases of loss of rights to unemployment insurance, death or invalidity of the plan holder or spouse, sale or creation of a new part of the company involved and retirement or pre-retirement. The funds will be managed by a control board, on which employee representatives will hold the majority of the votes.
Looking to the future, Balligand and Foucauld also propose the creation of intercompany and regional open funds (Plan d’Epargne Interenterprises Regional) for collective long-term savings with greater freedom for capital investment, regional FCPs and fund of fund arrangements.
PEE, practically unknown in the 1980s had almost 9,000 workplace agreements by 1997 covering around 17% of businesses with over 2,000 employees, or approximately 5.5m salaried employees
The union-approved plans are still the subject of attempts to interest companies with less than 50 employees, where only 2.7% of the sector are covered. Hugh Wheelan