PER - Individual Retirement Savings Plan
Your Objective
Are you looking to build up additional savings for your retirement? During a transition period that could extend until October/December 2020, you can still subscribe to a PERP (available to everyone) or a Madelin Retirement Contract (for self-employed individuals) while awaiting the launch of the first PERIN (Individual Retirement Savings Plan) contracts at the end of 2019 or early 2020.
Details
PERP, Madelin Retirement Contract, PERIN: Understanding Individual Retirement Savings Options
The PERP (Popular Retirement Savings Plan):
This investment vehicle is open to everyone without entry conditions, allowing individuals to receive a regular income (lifetime annuity) or a lump sum (partial or total capital withdrawal) upon reaching retirement age. It is a long-term savings product since the funds are locked until retirement. Early withdrawals are possible in certain unforeseen circumstances (disability, over-indebtedness, etc.) or upon the death of the policyholder.
In terms of taxation, the PERP allows you to deduct contributions from your taxable income, subject to a specific ceiling for each member of the household. Upon receiving the annuity, these payments are taxed under the rules for pensions and retirement income. If a lump-sum withdrawal is chosen, it is taxed according to the progressive income tax scale.
The Madelin Retirement Contract:
Created in 1994, the Madelin Retirement Contract aimed to reduce the disparities between social protection for employees and self-employed workers. It allows self-employed individuals (TNS) to build up a supplementary retirement income through capital accumulation while benefiting from tax deductions: contributions are deductible from the company’s profits or commercial income, within certain conditions and limits. An annuity is paid out upon retirement. A lump-sum withdrawal was not possible (except in specific cases) until the introduction of the PERIN.
The PERIN (Individual Retirement Savings Plan):
The PERIN is the individual component of the Retirement Savings Plan established by the Pacte Law. This retirement savings compartment is set to replace the PERP and the Madelin Retirement Contract in the long term. The Pacte Law also plans to introduce two additional compartments: collective and targeted collective. As all the implementation ordinances have not yet been published, we will update this page as new regulations are issued to reflect their impact on your retirement savings.
Advantages
Advantages of the PERP:
- Deduction of contributions from taxable income, within the specified limits
- No deposit ceiling
Advantages of the Madelin Retirement Contract:
- A supplementary savings product specifically for self-employed individuals (TNS)
- Contributions are deductible within specific limits from profits or commercial income
Advantages of the PERIN to date:
- A universal individual retirement savings plan open to all savers (except those with Madelin Retirement Contracts)
- Maintains tax advantages under existing regulations
- Flexible withdrawal options: lump-sum in full or in installments, lifetime annuity, or a combination of both
- Free transfer of invested funds if the product has been held for five years, otherwise, a transfer fee of 3% of transferred assets may apply
- Possible transfer of funds from life insurance policies (held for more than eight years) to PERIN vehicles before January 1, 2023
- Generalization of early withdrawal eligibility upon each change of primary residence
- Expanded cases for early liquidation: disability of a spouse, PACS partner, or children
OptiFi’s Opinion
The PERP and the Madelin Retirement Contract are long-term savings products designed to build up additional retirement income.
Moreover, the fact that these products offer a tax benefit upon entry makes them investment vehicles that are often promoted by sales representatives.
However, upon closer examination, it becomes clear that in most cases, such investments are rarely advantageous. As mentioned, the funds invested in these products are locked. Additionally, while the tax benefits upon contribution are appealing, they lose their attractiveness when the annuity is taxed at the time of withdrawal. These retirement savings products, therefore, allow for a deferral (or postponement) of tax liability.
Furthermore, the mortality tables used by insurers often delay the point at which you recover your capital. Nevertheless, some specific cases can be worthwhile, particularly for individuals in high tax brackets nearing the end of their careers.
Since the Individual Retirement Savings Plan (PERIN) essentially merges the features of the PERP and Madelin Retirement Contract, it is likely to yield similar conclusions. However, the expected ordinances under the Pacte Law may bring new elements to the table.
We will closely monitor the taxation upon withdrawal (whether annuity or lump sum), as this remains one of the current major obstacles.