France: Shaking things up

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French pension funds and first-pillar reform are on the horizon 

Key points

• Implementing regulation on IORP-compliant occupational pension funding vehicles has been published.
• Appeals have been lodged for a review of a decree on complementary pension schemes’ financial management.
• The government has been urged to take measures to return the public system to financial stability.

The potential emergence of French pension funds qualifying as Institutions for Occupational Retirement Provision (IORP) has moved a step closer.

Fonds de retraite professionelle supplémentaire (FRPS), as the new funding vehicles for occupational pensions are known, were first provided for by omnibus legislation known as Sapin II, officially published in December 2016.

This year the regulatory framework around the new entities has begun to be fleshed out.

In April, the French government published an ordinance (No. 2017- 484) that sets out the rules formalising the creation of the FRPS.

In July, further regulations were published, setting out how the new entities are to be established and authorised, and how their governance and financial and Prudential management should be organised.

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All together, the new framework allows insurance companies, including mutual, and provident institutions, to move certain types of occupational pension business out from under Solvency II regulation and into a regime that is compliant with the IORP Directive.

Crucially, this means being freed from Solvency II capital requirements, which are seen as penalising certain asset classes, such as equities.

The government has previously estimated that €130bn of assets would be eligible for the transfer to FRPS vehicles. A Financial Stability Board ‘peer review’ of France said the creation of French-style pension funds was intended to redirect €10bn-20bn into financing the domestic economy.

The regulator, Autorité de contrôle prudentiel et de resolution, will be responsible for approving the new funding vehicles. A spokesperson told IPE that it expected the first requests for authorisation would be made in 2018.

France does not have any pension funding vehicles that qualify as IORPs.

There are so-called Article 4 ring-fenced funds, however, which house the assets and liabilities corresponding to an insurer’s occupational pension provision business and to which certain provisions of the IORP Directive apply.

The revised IORP Directive, IORP II, took effect in January. Member states have until January 2019 to incorporate it into national law.

Elsewhere in France, a controversial decree regulating the financial management of certain mandatory French complementary pension schemes is due to take effect in January 2018, having been published in May.

The decree applies to the schemes for the so-called free professions. The Caisse Nationale d’Assurance Vieillesse des Professions Libérales (CNAVPL), an association comprising 10 schemes for professionals such as dentists, midwives, and architects, is affected, as is the regime for the self-employed, for barristers, clerks and employees of law firms, civil aviation flight crew, and agricultural workers.

Some €50bn of reserves in total would be affected by the decree, according to CNAVPL.

top 10 french pension funds

It specifies rules related to the governance of the schemes’ financial management, investment policy, risk management and internal control.

The schemes concerned are against the decree, arguing that it introduces rules that would have negative repercussions on the returns they can generate from their reserves and could accelerate the reserves’ decline.

IPE understands that two appeals were lodged with the Conseil d’Etat, which advises the public authorities on legislation, in July.

Looking further ahead, fundamental pension reform is on the agenda, following the election of Emmanuel Macron as president.

As he set out during his election campaign, Macron wants to harmonise how pension entitlements are calculated across the multitude of mandatory public pension schemes so that the same rules apply, regardless of one’s professional activity or sector. His strapline has been: “for every euro contributed, the same pension rights for all”.  

The details of the reform are not yet clear, but it is said the plan is to introduce a notional account system based on the model in Sweden.  

According to French media reports, in July solidarity minister Agnès Buzyn  said the reform would be “very long-term” and that the plan was to have a “framework law” in place for the middle of next year.

This would set out the timeframe for the reform, which would be worked on throughout Macron’s term and “probably” be implemented in the subsequent term.

Macron’s government has also been presented with a problem it had not initially foreseen – the sustainability of its public pension system.  

His En Marche! campaign programme stated that “after 20 years of successive reforms, the pension problem is not a financial problem”. Yet in July the Comité de suivi des retraites, a pensions monitoring committee, took the unusual step of issuing its annual opinion in the form of an alert, calling on the government to take the “necessary measures” to put the system on a path towards equilibrium.  

This followed a report from the Conseil d’Orientation des Retraites, a pensions advisory body, that said the system would not return to financial stability until the early 2040s, rather than the mid 2020s as had been envisaged.

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