To the outsider France’s retirement system can seem like a complicated jigsaw. And no piece appears more difficult to place than the role of the caisses de retraite (CDR), which make up part of the first platform of the country’s pay-as-you-go (PAYG) ‘répartition’ system.
While the basic function of the caisses is to funnel pension contributions from French employees into Arrco and Agirc, the bodies that administer and pay pensions to retirees, their role also encompasses a range of nuances within the French system and covers an interesting number of ‘funded’ pension schemes.
As Bertrand Osio, director of communications at Paris-based CDR Groupe Médéric, notes, the caisses have been around longer than both Agirc (the retirement platform for France’s ‘cadre’ middle managers) and Arrco (the platform for the remainder of France’s working population), which were created in 1947 and 1961 respectively.
Founded in 1937, Médéric is one of France’s ‘caisses interprofessionelles’ meaning it is not linked to any particular company or industry.
Some of the first companies within the group included car manufacturer Citröen and Air Liquide, alongside many smaller groups. Membership today numbers some 80,000 companies.
The group was set up to examine the way retirement contributions could be distributed to families at a time when there was no state regulation for such issues. Another branch of the organisation looked after medical and health insurance questions.
Soon after being set up the groups began to include employee representation and just after the war became ‘paritaire’ with representation from employers, unions and employers as they remain today.
Subsequently, as the idea of a national social insurance began to develop in France, the state created the basic social security pillar by which to step in and equalise the system.
However, Osio explains that France’s professional sectors have always had their differences and sought independence from each other. “French employees have historically looked for their benefits to be decentralised with a notional federation ensuring equality above that. As a result I believe France has a relatively simple pensions system and when you retire you have only one necessary operation with the social security, one with Arrco and one with Agirc, if applicable, and each is charged with the administration for the part they cover. It’s not impossible that Arrco and Agirc will come together in the future either, so the system is not as complicated as it looks.”
This begs the question why a particular company should go via Mederic or another CDR. Osio points out that it is not just a question of retirement provision but the add-ons CDRs provide, such as retirement accommodation and special unemployment or education provision.
“The caisses de retraite are not supposed to be competitive and are not allowed to advertise their retirement products. Of course, there is no difference between what the caisses actually offer in terms of pension provision. The add-on services are important, though, even if this maybe shouldn’t be the case and are paid by a percentage from contributions. The Médéric budget in terms of social action is not far off Ffr500m (e76m),” says Osio.
Management of the caisse reserves must follow investment allocation rules imposed by Agirc and Arrco. These stipulate that at least 68% be in euro or EU listed bonds on a recognised stock exchange, which for the most part remains in France and Euroland.
The equity ceiling stands at 25% and in Euroland only, with 7% permitted in the form of loans.
Osio notes that the approach is very “père de famille” in its prudence, adding: “We run the major portion of our funds through our financial department, although a small part is managed by specialist managers such as BNP and Barclays.”
Publication of the performance of the caisses is also made each year.
Jean Audenis at the Paris-based Union de Prévoyance des Salariés (UPS), created at the start of the 1950s as an interprofessional caisse Arrco for non-cadre employees in predominantly large companies, says the group has a small reserve to be used in the event of any Arrco deficit. “Originally some of the companies had no retirees when they began contributing and so built up a surplus of about Ffr4bn, which has been invested for future economies. For the moment the reserves are invested to a level of 90% in bonds and 10% in equities, with AXA managing all the assets,, which is due to an historical arrangement we have with them.”
Audenis says a top-up pension scheme also exists within UPS where the assets are outsourced on purely economic criteria and exempt from Arrco/Agirc regulation. “This fund is managed by both French and foreign asset managers and is one of about 150 ‘institutions de retraite supplementaire’ in France brought in after 1994’s Loi Madelain. He explains that these are generally regimes from large companies, although not necessarily just for middle management.
Paris-based Groupe Apri (Association pour la Retraite des Ingenieurs), formed in 1937, was the country’s first Agirc caisse and one of a small number to be created by a single profession – engineering.
Although the group today has negligeable PAYG retirement reserves, after its stock was used to meet pension requirements, Bruno Gabellieri at APRI points out that the group “pilots” a number of capitalised funds.
“We have the ‘chapeau’ top-up pension fund for Rhône Poulenc over which we control the investment guidance which can go via approximately 15 different managers we work with, including investment houses like JP Morgan and Lazard.”
Gabellieri says Apri also deals with the pension fund for France’s lawyers, which as one of the country’s liberal professions has its own fund arrangement with approximately Ffr5m in annual contributions placed in Sicavs, monetary and bond funds by Apri. “It’s not really talked about that much in France because it’s not the core business of the CDRs. These things go out to an RFP like other mandates – so there is a certain amount of competition between the caisses.”
CARMF (Caisse Autonome de Retraite des Médecins Français), the Paris based CDR for France’s non-salaried doctors, which runs its own top-up plan for adherents. Capimed (see IPE, October 1999) is also looking closely at its financial investment on the PAYG side.
Béatrice Goguel, director adjoint at CARMF, says: “The pensions reserves here are only used in the case of any financial problems and are invested mostly in French equities and bonds with a small slice of international investment by our in-house managers. Some Sicav investment is also outsourced to Paribas. However, at the moment we are in the process of accumulating greater reserves than normal, because if we continue as we are we won’t be able to pay our pension commitments in the future. We are putting aside cash of up to about Ffr50bn from increased contributions and will invest it in order to arrive progressively at a point where we can maintain levels for retirement.”
This investment, she points out, is subject to the regulatory rules of Arrco/Agirc. “Regulation may change in the future and then we could diversify our investment, but for the moment we are still restricted in what we can do.”
However,Goguel believes a move towards greater capitalisation for French pensions is now firmly on the horizon, but stresses that it will not be to the detriment of the present French system.
“There are certain caisses de retraite in France which have capitalised pension arrangements like ourselves and I think those caisses which up until today didn’t have very much in reserve funds will gradually become more capitalist in their outlook to meet the future pension payment issue.”