Supplementary retirement savings, which offer employees the possibility of saving during their career in order to have a supplementary pension, is now experiencing many changes. Firstly, more companies offer an additional retirement plan to their employees. The 50% cap of companies of all sizes that offer an additional scheme in the form of a DC plan “Article 83” contract has just been crossed, and it goes up to nearly 55% for large domestic companies and subsidiaries of multinationals. This development clearly shows that there has been a real increase in awareness for the need to set up supplementary retirement, thus taking advantage of a favorable tax treatment for both the employee and company.
“Article 83” DC contract opens up to all employees
Secondly, coverage under the “Article 83” DC plan has been extended to all categories of employees: these plans do not target solely managers and executives of the company, which was still the case few years ago. Companies back then favored managers and executives as their replacement ratio – income at retirement over the last salary – is lower than that of non-managers (less than 50% for managers and executives versus 75% for the non-managers). The context has changed: according to a recent study by the Pension Guidance Committee, the average replacement rate for retirees as a whole will be between 36% and 46% by 2060 compared to 52% currently. A non-manager employee in the non-public sector, will see the replacement rate drop from an average 75.6% (1955 cohort) to 64.4% (1985 cohort) between 2020 and 2050. The erosion of the replacement ratio for non-managers, has therefore encouraged companies to extend coverage under Art. 83 DC plan to all employees.
Better replacement rate through employee contributions and Employee Voluntary Contributions (VIFs)
Thirdly, more and more companies are taking part in helping employees build their pension income by encouraging contributions to Art.83 DC type contracts. Involving employees in their own coverage, whether it concerns retirement, health and welfare is a strong trend today. Companies cover on average 67% of total contributions, employee pick up the remaining 33%. Of course, the higher the level of employer and employee contributions, the higher the additional replacement rate for employees, as can be seen in the table below.
Part of the company initiative is encouraging additional Employee Voluntary Contributions (EVC, VIF in French), this is done through communication with the help of the broker and the insurer. Employees who supplement their contributions to an additional “Article 83” plan with VIFs may see their replacement rate increase by up to 10%.
The PACTE Act – Bridges between the different supplementary retirement and savings schemes
Today, VIFs are only possible within an Art.83 DC plan. But it is important to specify that the future PACTE Act (Action Plan for the Growth and Transformation of Enterprises), which aims in particular to provide a common legal framework for the various supplementary pension and savings schemes, will allow employees to make VIFs on savings plans as well.