The statutory pension schemes, at best, appear slightly uncertain, at worst, provoke jaded pessimism. In the minds of working people, there is no doubt that the pensions paid out by the first and second pillar schemes (basic social security plus Arrco/Agirc) will continue to dwindle over the coming years. Consequently, the so-called “article 83” additional pension scheme becomes a must. This type of scheme is a welcome benefit for employees and offers a number of attractive features for employers.
“Article 83” plans: tax and social insurance efficient
An “article 83” additional pension plan enables staff and the employer to make monthly contributions to an insurer so as to obtain a life-long annuity on retirement, in addition to pension payments received from the statutory schemes.
It is tax and social insurance efficient both for staff and the employer. This is because the contributions paid by the company are deductible from profit tax and exempt from social insurance contributions (within generous limits). In addition, the employee’s contributions are deductible from income tax. Obviously, the employer contribution does not escape the flat social charge (“forfait social”) nor the supplementary CSG/CRDS contributions.
“Article 83” plans: a flexible, group solution
An “article 83” plan is a group insurance policy, which means it must be put in place for a distinct category of staff such as, for example, line management staff. The contribution rate applies equally across-the-board and is freely determined in the policy. There is just one constraint: the employer must make a minimum contribution. The company can, also, make the scheme non-contributory for staff. In the end, once the collective agreement is put in place, the scheme becomes obligatory for all staff concerned.
Ever since 2010, employees have had the possibility to make additional voluntary contributions (AVCs) under the same terms and conditions so as to increase their life-long annuity. This improvement changes everything! Each staff member can therefore take advantage of the scheme depending on his/her age, income tax rate and personal inclination – be a grasshopper or an ant!
The main features of an “article 83” plan
An “article 83” plan is a defined contribution scheme. Everything is clear both for the staff member and the employer, who bears no obligation to fund the scheme. This type of plan, created in 1985, is reassuringly stable.
Each year, the insurer sends staff members a statement setting out their estimated pension entitlement. This makes it an employee benefit that is very real in the eyes of staff.
Contributions made by the staff member, either by monthly direct debit or as AVCs, are tax deductible. On the one hand, he or she is saving for retirement. On the other hand, the member benefits from tax savings depending on his/her marginal tax rate, which for many managers means 30% of the amounts paid in.
Of course, the life-long annuity will be subject to income tax…but that is many years from now!
AVC’s give “article 83” schemes a degree of flexibility they did not have before. The collective agreement becomes much easier to negotiate since each staff member can see the advantages for their own situation.
From the staff member’s point of view, membership of an “article 83” scheme can be easily transferred to a new insurer in the event of a change of employer. Better still, if the new company does not offer this benefit then the former staff member can still continue contributing to his/her “article 83” scheme through AVCs.
Tips from us on making use of “article 83”.
- • Set up an “article 83” scheme (with AVCs) at a reduced rate
The company often hesitates to commit itself to a long-term increase in overheads and young staff, or those on low income, cannot really see the purpose of cutting their net wage purely for pension or tax considerations. Setting the rate of contributions at a low level, even symbolic, such as 0.5%, gets rid of any questions of affordability likely to stem the enthusiasm of employers and employees alike. At the same time, the AVC gives each staff member the possibility of making use of the scheme as best suits his/her interests.
- Combine a Perco with an “article 83”
A Perco offers a lump-sum pension payment but AVCs are not tax deductible. So, a Perco could be used as a vehicle for saving profit-share emoluments (mandatory and non-mandatory), which are then non-taxable in such cases. Whereas, the “article 83” plan is an excellent tax-efficient vehicle for building up secure savings for one’s retirement.