A look at ‘PERCO’ retirement plans and the Macron act

It is now a year since the Macron Act was promulgated but nothing much has moved. It has not revolutionised retirement savings nor even employee benefits Yet one scheme – the group retirement plans known as Percos – have been particularly strengthened by the measures announced. Leaving aside SMEs – they make up less than 10% of staff in companies of under 250 – the Perco is the most underused of retirement savings plans: only 22.4% of employees have access. But things could change. Thanks to a much more convincing Perco and the ever more glaring need to offer employees solutions to complement their basic pillar 1 pension.

The ‘Perco Plus’: simpler with less tax

The pure and simple abolition of the 8.20% levy on employer matching contributions over €2,300 p.a. will not ruin government finances. The average annual employer contribution to a Perco is around €481 per employee. But, it has the merit of doing away with an incomprehensible tax levy that was making access to a Perco unnecessarily complicated.

The Macron Act has also had an effect on the so-called flat social charge (“forfait social”) but only moderately and under certain conditions. The rate of this tax has indeed been reduced from 20% to 16% for the totality of payments into a Perco. A meagre boost in exchange for two new apparent constraints.

Controlled management and investment in SMEs: welcome constraints!

The new generation Perco, also known as the Perco Plus, must offer controlled investment management, by default. Control is simply a formula whereby sensitivity to risky high yield investments is modulated depending on the investment horizon. In practice, this means that as the employee gets closer to retirement so the part invested in equities reduces. A common-sense formula that is tailor-made for all and which also teaches us a lesson as most employee savings today is invested in so-called secure investments that offer yields close to 0 or even negative.

There is another condition: 7% of investments – a percentage that reduces as retirement approaches – must be in assets that are eligible for so-called PEA-PME schemes (equity savings plans directed at financing SMEs). This is, indeed, yet another new opportunity to diversify investments in addition to the possibility given recently to FCPEs (employee savings investment funds) to invest up to 30% of their assets in OPCIs (real estate collective investment undertakings).

Unilateral, periodic inpayments: the little detail that changes everything

The Macron Act now offers employers the possibility to make periodic inpayments into a Perco, provided these are spread uniformly across the whole workforce. Up until now, the Perco was a vehicle made available to staff to prepare for retirement. If they chose to use it as a savings vehicle then they could benefit from an attractive employer matching contribution. Periodic inpayments changes the nature of a Perco. It is now part of the employer’s reward strategy. The employer can decide to pay remuneration into the scheme, with no obligation as to duration. In addition, periodic inpayments means bonuses can be paid across-the-board including to those with little savings capacity. This possibility is, nevertheless, limited to 2% of the annual social security ceiling (PASS), i.e. €772 in 2016.

>>> Our opinion:

This reform has made the Perco much more attractive. But not enough, however, to push companies into renegotiating current agreements! Even so, the new generation Perco may well attract new fans. It is an employee benefit that is simple, not costly and easy to manage. It could well appeal to employees provided the message gets across that they absolutely need to complement their pillar 1 obligatory pension. In addition, the savings build-up can be released to purchase one’s principal residence, which in itself is an excellent way to prepare for retirement. And the icing on the cake is that the CEO can also benefit. A far from negligible benefit for an SME.