Flexibility and freedom of choice are the key words in the new pensions and benefits system of French oil and chemicals sector giant TotalfinaElf. Coinciding with the Loi Fabius on pensions and savings, the newly-merged group was quick to act in setting out its vision for new harmonised supplementary schemes that embodied both existing models and fresh opportunities.
The new system resulted from the collective bargaining agreement for the French oil sector. The new system includes not only complementary and supplementary pensions vehicles, but benefits, salary-related savings schemes, employee profit-sharing and member participation schemes.
The agreement covers some 18,500 workers in the French oil sector. Though there is a group-wide savings plan covering the chemical industry as well, TotalfinaElf has decided to concentrate its efforts on the supplementary system for the oil sector instead.
Totalfina and Elf Aquitaine already had supplementary plans in place but both were acutely aware that they could no longer afford schemes of this kind.
The new system comprises two main vehicles – a long-term salary-related savings scheme, Plan Partenarial d’Epargne Salariale Volontaire (PPESV) and a mandatory life annuity fund called RECOSUP. It was union insistence that there be some form of obligatory plan in place that led to the RECOSUP being included.
TotalfinaElf also decided to include a complementary scheme in its new system but this is considered far less important and doesn’t receive the same support as its new supplementary counterparts.
Both products are managed externally and TotalfinaElf says it worked closely with consultancy firm JWA on the tender offer it prepared to select its managers.
CNP Assurances in conjunction with its main partner, CDC, was chosen to manage the RECOSUP whilst Axa was selected for the PPESV.
Despite two management groups, TotalfinaElf says the two schemes share a common investment policy that is based on customised investments in streamlined mutual funds coupled with the objective of maximising returns.
Overall, TotalfinaElf places the emphasis firmly on the optional PPESV as the main vehicle for supplementary provision, and as such the employers’ contribution rate for this plan is much higher than for the RECOSUP. Thanks to this, TotalfinaElf’s PPESV has been a resounding success and membership to it now exceeds 70%.
There are two levels of contributions to the PPESV, with the employer topping up the employees’ contribution by 200% in both cases. The first level is a straightforward set amount of €13 per month by the member so, with the employer top-up, the full contribution is €39. This is primarily aimed at workers on lower incomes. The second level involves a percentage of salary, the minimum being 0.32%. This rate is capped at €1,600 per year.
The minimum saving period is 10 years and though TotalfinaElf originally wanted 20, the unions thwarted the move.
Both Axa and CNP Assurances manage member’s assets by streamlining them in different mutual funds and customising them in terms of risk as members approach retirement to safeguard their accrued capital.
The RECOSUP is basically a mandatory life insurance fund. TotalfinaElf says contributions are set at 1.5% of salary, of which the employee contributes 0.5%, the employer the rest.
It is managed in a capitalised fund by CNP Assurances and provides a life annuity at maturity. What really sets it apart from its competitors, according to TotalfinaElf, is the way employees may choose to invest in cash investments or unit-linked funds. TotalfinaElf says the cash investment plan is a safer option and offers a double guarantee – on capital invested and actual returns, whilst the unit-linked area offers greater returns if employees are willing to sacrifice some security.
The unit-linked element is structured into three tiers determined by asset class composition. Tier 1 consists of 80% equities, 20% bonds, tier 2 is split 50/50 and tier 3 is 20% equities, 80% bonds. CNP Assurances places members’ money in the different tiers according to their age; so if a person joined the company at 25 their money would initially go in tier 1 but would be gradually reinvested in tiers 2 and 3 as they got older. TotalfinaElf believes customising members’ pensions this way just prior to retirement vastly reduces risk and protects their investment.
TotalfinaElf says members may blend the way their contributions are invested by allocating different portions of their assets between both the cash and unit-linked funds.
Retirees are free to choose the way they want their money paid out. They can take it in one lump sum, several smaller lump sums or as regular monthly payments till they die.
Asset liability modelling
TotalfinaElf determined the contribution rates as a result of hypotheses and simulations it carried out. These considered various contribution life spans of between 15 and 40 years, risk factors and stock market conditions and the various ways these might develop. The results were then compared to one of the merged groups existing pensions and benefits models to see how the new system might work in practice.
Highlights and achievements
One of the main tasks ahead is convincing people why they need supplementary pension provision and TotalfinaElf says its communication and education policy have been finely tuned for this. Axa and CNP Assurances have worked side by side in the TotalfinaElf helpline and getting the system established.
The group has published and distributed a series of information packs and brochures in record time and organised special conventions and meetings where employees could come discuss the new plans.
An extensive information pack is now available for new employees and special teams have been set up to offer personal consultation. The group, alongside both Axa and CNP Assurances, has set up extensive online facilities, allowing members to view their pensions and simulate their future position.