PPSEVs replace l’Epargne Retraite
Last August, the French government approved proposals to introduce a law allowing employees to subscribe to new voluntary tax-favoured savings plans to be known as ‘plans partenariaux d’épargne salariale’ (PPESVs).
Contributions will be made by both employers and employees and the plans will have a duration of 10 years, at the end of which all capital gains will be paid out tax free. The accumulated capital can be used for a wide range of purposes in addition to supplementing retirement income, such as paying for the further education of children, house purchase and setting up a business.
The proposals have been debated in parliament since last autumn and it is expected that the Assemblée Nationale will vote the final version this spring.
The government’s motivation for introducing the proposals is to encourage long term savings in France, to facilitate French companies to raise capital and to counterbalance the levels of foreign ownership on the French bourse. Some French unions have opposed the proposals by suggesting that the introduction of these plans is a means of bringing in contributory private pension plans by the back door.
The unions are not wrong in their assessment of the situation. The PPESV are to replace the dead Thomas law on L’Epargne Retraite initiated under the previous administration.
There are some differences between the current Plans d’Epargne d’Enterprise (PEE) and the PPESV, though judged from an investment vehicle perspective they are the same.
The money the employees contribute on a voluntary basis and that from companies matching their employees contributions will be invested in mutual funds of the FCPE type that offer a wide array of investment choice.
The key issue will be educating employees understand the pros and cons of investing in more risky but more rewarding asset classes (mainly equities), provided they adopt a long-term savings approach.
As to the impact that the PPSEV will have on the institutional investment, this is likely to be minimal in the present French market, since, firstly, they do not differ from the PEE from an investment vehicle perspective. Furthermore, both the PEE and PPESV operate in a way that is very similar to a defined contribution plan vehicle. Therefore, there will be no formal actuarial evaluations and ALMs and the pension fund investment approach will not apply to them, both from a plan sponsor and money manager perspective. The closest we will see is the lifestyle product offering.
Thirdly, the investment choice will be reduced in the French market since the big players will handle these through their administrative/distribution chains.
So what about the longer term future? It is only if an independent, large third party distributor or money manager, who are not part of the present big player set up, decides, whether on their own or with partners, to invest in the administration (distribution) chain that these products will have an impact on the institutional side of the market. What is not yet clear is whether the internet will cause a break in the distribution oligopoly and if so how this would happen. But if PPESVs should become very successful or if there is an increase the popularity of PEEs, the level of investment understanding of the French employees will naturally develop. This is what happened with the employees of the companies which implemented aggressively their PEE, both in terms of the communication to employees and in the choice of asset classes available in the FCPE offered. As a consequence the demand for more investment and money managers choice will become stronger.
Richard Deville is managing director of Watson Wyatt in Paris