France's state-owned gas provider Gaz de France (GDF), along with Electricité de France (EDF), operates a special government-regulated pension system which is fully funded through insurance companies.

The scheme, which demands the same legal and compulsory responsibility on the part of GDF as the state social security pay-as-you-go system (répartition) offers a specific retirement premium for all employees comensurate with salary and career duration.

The principle reason for running the system through insurance providers is the fiscal exemption afforded to GDF for this type of scheme, as Thierry Sudret, head of the social finance sub-division at the group, explains: The French government gives us tax-free status on our retirement,investment and financial products provided that the assets are outsourced to an insurance company. At GDF we have three contracts with France's largest three insurers for FCPE [Fonds communs de placement pour_entreprises] retirement funds."

These, he says, have been calculated on an actuarial simulation for the company's estimated liabilites for the next 60 years, in order to ascertain the amounts placed with the insurers.

On the investment side, Sudret points out that one of the requirements of the outsourcing is that GDF must not exert undue influence on asset decisions.

The process, he explains, is that the insurers run the money through a bank, principally within its own stable, then report back for consultation with GDF.

"We have quarterly meetings with the insurers to oversee the investment process and we do have some input on how the money is managed. For example, at the beginning of the outsourcing we prompted a very conservative benchmark approach to reflect GDF's status as a publicly accountable operation. But over time the benchmark has evolved to its current 50% bonds/50% equities holding as we felt more confident in handing a more liberal investment rein to the insurers."

This has led to good results, he says, regularly bettering the index, apart from a disappointing September.

As a result, Sudret believes the relationship is a very flexible and particularly cost-effective shell for tax-free investment.

He adds that the rates charged by the insurers are also extremely competitive, particularly as GDF was among the first companies to adopt this system, so its business was greatly courted in the tender process.

In terms of the euro as a catalyst for a possibly cost and choice attractive European insurance sector, Sudret says this will have litle bearing on GDF: "Our original tender was very cross-border with many foreign insurance companies involved, so looking at an insurance sector was already a reality for us. But we believe the French insurance market is strong, and although the euro will certainly widen the scope for insuranec choice within French companies, it's hard to say whether any will move away from the domestic market.""