PER: Tax Issues Related to the Retirement Savings Plan

A report presented in September by the National Assembly's Finance Committee proposes several ways to improve the tax treatment of the Retirement Savings Plan (PER), with the aim of benefiting low-income households.
 

The Finance Committee's Report
On September 24, the National Assembly's Finance Committee reviewed the report of the fact-finding mission on the taxation of funded retirement savings plans, specifically the taxation of the Retirement Savings Plan (PER).
 

According to the Directorate General of the Treasury, the outstanding balance of PERs increased by nearly 64% between 2022 and 2024. This positive trend shows that the measures taken under the Pacte Law were not in vain. However, the total value of these savings remains significantly lower than that of life insurance policies, which reached more than 1,800 billion euros at the end of 2022.
 

As of the end of 2023, the total assets under management in the PER reached 102.8 billion euros, held by more than 10 million French people. However, the average assets per contract amount to only 19,700 euros, according to the latest figures from the life savings barometer published by Facts & Figures.
 

“While these figures are encouraging, we believe that the growth of retirement savings in France is insufficient,” explains Representative Félicie Gérard, the report’s author. “All the stakeholders we interviewed confirmed that the French tend to underestimate their life expectancy in retirement and the financial needs associated with old age. Working adults start preparing for retirement late, and 20% of them overestimate the amount of their pension,” the lawmaker adds.
 

The Low Adoption Rate of Retirement Savings Among Low-Income Households
According to INSEE, “the share of executives holding a retirement savings product stood at 34% in 2021, compared with an average of 16% for all households.” The low uptake of retirement savings among the lowest-income households can be explained by their “limited ability to save.” Low-income households “prioritize, as a precautionary measure, the most liquid products in order to protect themselves against hard times and life’s uncertainties.” Furthermore, those who are not subject to income tax have no incentive to open a PER to benefit from the tax deduction on contributions from taxable income.
 

The report’s recommendations
To make the PER more accessible to low-income households, the report’s authors outlined several areas for improvement aimed at “a necessary adjustment to the tax treatment of annuity payouts, which would benefit the least affluent households.”
 

Currently, the funds accumulated in the first two sub-accounts (voluntary savings and payroll savings) are subject to the General Social Contribution (CSG) on investment income at a rate of 9.2 percent, for an overall social security contribution rate of 17.2 percent. Savers also benefit from a tax deduction under the scheme for life annuities purchased for consideration (RVTO). This means that only a portion of the annuity—which varies depending on the beneficiary’s age at retirement—is subject to income tax and social security contributions. Conversely, funds accumulated in the third compartment (mandatory savings) are subject to the tax regime for the gratuitous life annuity (RVTG), and thus to income tax (after a 10% deduction, up to a limit of 4,123 euros for 2024).
 

The rapporteurs recommend, in particular, “standardizing the CSG contribution rates. In their view, it is not right for there to be two different systems. In the first, the rate is 9.2%; in the other, it ranges from 0% to 8.3% depending on income. It is people with modest incomes who are penalized, not those who are very well-off and have already reached the cap anyway,” explains Representative Charles de Courson, one of the rapporteurs. Furthermore, the two rapporteurs stated their intention to “make the implementation of a PERECO mandatory in companies with more than eleven employees.” However, neither the employer nor the employees would be required to make contributions to it.
The two rapporteurs also stated that it would be necessary to create “a standardized information sheet to better understand the fees” associated with the PER and to set up “online simulators.” Representative Félicie Gérard also noted that “several of our proposals may be subject to amendments for future budgets.”
 

Is the PER a tax loophole?
The report does not focus solely on the PER’s appeal to low-income households. The rapporteurs also recommend setting age limits for opening and closing a PER account and modifying the tax treatment of this product in the context of estate planning.
 

The introduction of a dual age limit: “In practical terms, a saver would no longer be able to open a PER after age 67, and if they already have one, it would be automatically liquidated at age 70. “These age limits seem appropriate to us insofar as they correspond, respectively, to the age at which the discount is eliminated and the reference age for life insurance tax benefits,” explains Representative Félicie Gérard. The Directorate General of the Treasury reportedly informed her that “discussions were underway regarding the implementation of an age limit for liquidation, but without specifying their content or a timeline.”
 

Currently, when a saver chooses to have contributions deducted from taxable income during his or her working life and dies before the plan is paid out, no back-tax adjustment is made. Congressman Charles de Courson wishes to remedy this and recommends “taxing the beneficiaries by subjecting the amounts transferred to income tax, provided they correspond to contributions that were previously tax-deductible.” 

The amount of tax paid would be deductible from the estate assets subject to inheritance tax, “in order to avoid double taxation.” “It is only natural that the heirs should pay the income tax that the deceased would have owed had he or she closed out his or her PER,” the representative explains in the report.
 

“The Treasury Department, whose representatives we heard from, acknowledges a net loss for the state budget, though it is unable to estimate the amount. There is therefore an unnamed tax loophole related to the transfer of the PER,” said Representative Félicie Gérard.