The Retirement Savings Plan (PER): the complete guide in 8 minutes

 

The French pension system is currently fragile, making it essential for everyone to take charge of their personal finances to guarantee a comfortable retirement income. The Plan Épargne Retraite, or PER, is a powerful investment tool designed to help you prepare for this crucial stage of your life. This comprehensive guide presents the advantages, disadvantages, and specific features of the PER so you can determine if it meets your needs.

Table of Contents

• What is the Retirement Savings Plan (PER)?
• The three types of PER
• What can be invested in a PER?
• The tax advantage of the PER
• Taxation at exit: free entry, paid exit
• Advantages of PER
• Disadvantages of PER
• Conclusion

What is the Retirement Savings Plan (PER)?

The PER is an investment wrapper created to allow you to build up a capital in the long term, specifically for your retirement. Established in 2019 by the PACTE law , it replaced several schemes such as the Madelin or the PERP , with the aim of harmonizing and simplifying access to retirement savings.

This capital is locked until retirement, except for specific exceptions. You can open a PER with a bank or an insurer; the choice of institution does not affect the main characteristics of the envelope.

The PER is accessible to everyone, without conditions related to employment or age. However, opening a PER for a minor child will soon be replaced by the Plan Épargne Avenir Climat, a system still under development.

The three types of PER

• Individual PER (PERin) : set up by anyone, you manage the payments and investments.
• Mandatory company PER : established by the employer, some employees must subscribe to it.
• Collective profit-sharing PER (PERCOL) : optional for employees, it is funded by profit-sharing, participation, and voluntary employee contributions.

Each of these types meets specific needs and offers operating methods adapted to different profiles.

What can be invested in a PER?

The PER offers great investment freedom. You can invest in stocks, ETF , of the private equity (also listed), as well as euro funds . This diversity allows you to build a personalized portfolio adapted to your risk profile and objectives.

The tax advantage of the PER

One of the main advantages of the PER lies in its tax benefit. Indeed, the payments you make to your PER are deductible from your taxable income, thus allowing you to immediately reduce your taxes.

This deduction is however capped:

• For employees, the maximum deduction corresponds to 10% of the previous year's income, with a ceiling set at approximately €35,000.
• For self-employed workers (TNS), this ceiling is higher, around €85,000.

An important point is that if you have never opened a PER before, you can benefit from a carried-forward tax deduction "stock", visible on your tax notice, which allows you to deduct more in the first year.

However, this tax advantage is particularly interesting if your marginal tax bracket (TMI) is greater than 30%. The higher your marginal tax rate (TMI), the more advantageous the PER is. For example, with a TMI of 45%, each euro paid actually costs you only 55 cents after tax deduction.

Taxation at exit: free entry, paid exit

As is often the case with French tax schemes, the entry is tax-advantageous, but the exit is taxed. At retirement, you will have two options:

• A life annuity payout, generally less attractive.
• A lump sum payout, often favored by savers.

The accumulated capital will be subject to income tax upon withdrawal, as well as to the flat tax (single flat-rate levy) on capital gains.

Illustrative example

Suppose an initial investment of €10,000 with a TMI of 41%. You then benefit from an immediate tax deduction of €4,100, which you reinvest. In total, you have invested €14,100 for a real cost of €10,000.

After 10 years, with an average annual return of 8%, your capital reaches approximately €30,441. After deducting taxes on capital gains (€4,902) and tax on the amount paid (€1,551), you are left with approximately €23,988.

The net tax performance is therefore 139% over 10 years, or more than 9% per year, which shows that the PER can outperform stock market performance thanks to its tax leverage effect.

Advantages of PER

• Building capital dedicated to retirement, anticipating a drop in income.
• Flexibility in payments: free or scheduled, according to your preferences.
• Choice between a lump sum or a life annuity at retirement.
• Open to both employees and self-employed workers, which is a big advantage for the latter who are often lacking in retirement provisions.

Disadvantages of PER

• Taxation is complex: deduction on entry but taxation on exit, with choices to be made regarding tax relief on payments.
• The capital is locked until retirement, limiting liquidity.
• Early withdrawal cases are limited, particularly for the purchase of a primary residence or in the event of life accidents (disability, end of unemployment benefits, death of a spouse).
• Fees can be high and significantly impact performance. It is recommended to compare contracts carefully and, if necessary, transfer your PER to a less expensive institution while retaining the tax benefits acquired.

Conclusion

The Retirement Savings Plan is a powerful tool for preparing for your retirement while benefiting from an attractive tax leverage. However, it is important to fully understand its mechanisms, particularly the taxation at entry and exit, and to verify that your tax profile makes this scheme relevant.

If you do not pay taxes or if your taxation is low, the PER will be less advantageous. On the other hand, if you are heavily taxed, it deserves special attention.

Finally, the PER is one of several possible investment vehicles to prepare for your financial future. To learn more, feel free to also explore the life insurance , the PEA or the securities account according to your objectives.