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Special Report

Impact investing


France: Pension funds à la française

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For the first time occupational pensions are to receive a dedicated regulatory underpinning of their own 

Regulation in summary

• The finance ministry has tabled a law, Sapin II, that will allow institutions in the insurance sector to set up standalone vehicles for their occupational pensions business.
• These will be pension funds ‘à la française’, housed under a bespoke regulatory regime combining elements of Solvency II and the IORP Directive.
• A government decree is expected by the end of 2016.
• A new law on the “energy transition for green growth” obliges institutional investors to report on their approach to ESG and climate change risks.
• The first annual reports to meet the new extra-financial disclosure requirements are due in 2017.

A major development affecting second-pillar pension provision in France is the tabling of a draft law providing for occupational pension funds. Finance minister Michel Sapin unveiled the draft law, dubbed Sapin II, on 30 March.

The proposed law is for an enabling act by which Parliament delegates to the government its powers to make laws. The government will have six months to produce an ordinance to implement the law. The industry hopes this will be completed by the end of 2016. 

For now, however, the nature of the law as an enabling act means it only sets out the basic elements of the new system. This, in the government’s own words, involves the creation of pension funds ‘à la française’.

Country facts

Article 33 of the draft Sapin II provides for a new legal vehicle for occupational pensions outside France’s mandatory retirement regimes – that is, company-sponsored pension plans (so-called Article 83, 82 or 39 plans) or Madelin contracts for the self-employed. 

Collective workplace retirement saving plans (PERCO) and individual savings plans (PERP) are ineligible for the new structure. 

The new vehicles are referred to as ‘fonds de retraite professionelle supplémentaire’ (FRPS), although the draft law does not use this term. 

The proposed law marks a change of approach to voluntary second-pillar pensions in France, even though the bulk of French pensions comes under a pay-as-you-go public pillar and mandatory occupational schemes, which are also mostly pay-as-you-go. 

In France, supplementary occupational pension provision has historically been run by the insurance sector and regulated as such. The problem, however, according to the government and industry, is that requirements in Solvency II, the EU regulation for the insurance sector that came into effect in January 2016, constrains insurers’ asset allocation, mainly by penalising equity investment at the expense of the French economy.

To remedy this, the proposed Sapin II law foresees the new funds being subject to a regulatory regime that aligns itself with the 2003 EU Directive for Institutions for Occupational Retirement Provision (IORPs) but incorporates elements of Solvency II – the key point being that the IORP Directive, including the revised version agreed at the end of June, does not impose capital requirements. 

The new vehicles will be under the supervision of the Autorité de contrôle prudentiel et de résolution (ACPR), the body responsible for the banking and insurance sectors in France.

According to the French government, some €130bn of assets will be affected by Sapin II, with the shift away from Solvency II expected to unlock “several dozen billion euros” to invest in companies. 

Another change affecting institutional investors in France is a requirement to report on environmental, social and governance (ESG) factors, and climate change in particular.

French retirement assets

The requirements are set out in Article 173 of the law on energy transition for green growth, which was voted through in July 2015 and came into force on 1 January 2016. 

In December 2015, the finance and environment ministries published a decree setting out the details of the reporting obligations. These are applicable for the 2017 annual reporting cycle, for the year ending 31 December 2016. The first reports must be published no later than 30 June 2017.

The Article 173 requirements apply to a range of institutional investors  including those in the insurance sector, the state-backed financial agency Caisse des dépôts et consignations, and supplementary pension schemes such as Ircantec and ERAFP.

Their annual reports must explain how their investment policies take into account ESG factors and how the measures they are taking contribute to building a social and economic system that relies less on carbon and natural resources.  

The decree sets out obligations for reporting on climate change-related risks and on the alignment of voluntary decarbonisation targets with national and international goals. 

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