New Provisions for Retirement Savings Plan Beneficiaries

For retirees whose monthly pension is less than 100 euros, a lump-sum payment may now be made in lieu of that pension.

Good news for retirees who have enrolled in a retirement savings plan that pays out as an annuity. When a retirement savings plan has insufficient funds, the annuity payment at retirement remains modest.  For those whose monthly annuity is less than 100 euros, a lump-sum payment can now be used in lieu of the annuity.
 

This change—which involves converting a modest annuity into a lump-sum payment—will now affect a larger number of investors. This stems from a recent update that raised the minimum threshold for annuity buyouts from 100 to 110 euros by ministerial decree dated July 17, 2023.
 

Estimates from the Ministry of Finance indicate that a monthly pension of 100 euros could result in a total payout of more than 30,000 euros if the pension is purchased at age 65.

This change primarily affects older retirement savings products, including Madelin plans, so-called “Article 83” plans, and popular retirement savings plans (PERP), where funds were withdrawn in part or in full in the form of an annuity. The same applies to the “mandatory contribution” component of the new retirement savings plan (Pero).
 

However, the attractive option of a lump-sum payment should not be taken lightly. A cautious approach is necessary, taking tax implications into account. The tax treatment of a lump-sum withdrawal differs from that applied to annuities.
 

It is therefore crucial to review the benefits offered by the policies, particularly whether they include a mortality table that could result in favorable terms for converting the policy into an annuity. To make an informed decision, it is recommended that you request a simulation from your insurer.
 

To protect investors' interests, the ministerial decree strengthens the measures by requiring—in accordance with the model already in place for new retirement savings plans—the beneficiary's prior consent before any redemption of annuities paying less than 110 euros per month.
 

Until now, insurers had the option, for retirement savings contracts established before the introduction of the PER, to substitute a lump-sum payment for a small annuity without requiring the beneficiary’s consent.

The decree of July 17 also introduces a significant change. From now on, savers can request the conversion of their annuity into a lump sum for annuities currently being paid out. Previously, this conversion was only possible at the time of retirement. This flexibility allows individuals to stop annuity payments after retirement and receive the full amount of the remaining capital, as calculated by the insurer.

Overall, these measures could open up these new options to more than 700,000 new investors, according to estimates from the Department of the Treasury. This development offers new opportunities for retirees looking to maximize their savings.