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Retirement savings : PERP or Madelin... or life insurance ?

The French are more likely to subscribe to a retirement savings PERP or Madelin to purchase an annuity which will supplement the pensions of collective pension schemes. These contracts savings individual pensions are a bit complex and quite restrictive, but we can optimize them. This is the first of 2 posts dedicated to this topic.

Many investors are worried about the evolution of pension systems. Eager to have a regular income sufficient until the end of their life, they are more likely to get a contract pension and retirement savings individual-type retirement savings Plan, popular, (PERP) or Madelin. Sometimes blinded by the tax benefits that are supposed to, many purchasers do not take the time to weigh their decision, nor to the point if they already have a contract. It is a shame, because these contracts can be heavily optimized ! Finance Practice dedicated 2 posts to this topic.

This 1st post will present the basics of the functioning of contracts, retirement savings PERP and Madelin and a comparison with the life insurance. In a 2nd post, the expert Guillaume Lattaignant explains how to Choose and manage his retirement savings PERP or Madelin.

A supplementary retirement

Contracts, PERP and Madelin contracts, savings and insurance retirement to supplement other retirement plans défiscalisée. Unlike those-these are individual contracts that you can adapt to your needs :

These optional insurance to complement the compulsory schemes. In effect, the income replacement rates of activity by the pensions of the compulsory schemes (basic plan and complementary) is in steady decline because of the growing number of retirees. The non-employed have even more need of retirement savings individual that their replacement rate is generally very low : between 30% and 50% for the liberal professions; 30% and 60% for craftsmen-merchants; up from 50% to 90% for employees.

You choose a contract that meets your needs. Supplementary pensions and saving Plans for the retirement collective (PERCO) are chosen for you by the branches of activity or businesses. The individual contracts of type PERP or Madelin are under your control : it is up to you to choose the provider and the terms and conditions of the contract ; it is also up to you to determine, at least in broad outline, what are the media financial fund (euros, bonds, shares...) your savings will be placed.

Your pension depends on the value of its financial instruments. In the schemes of basic and supplementary, your pension depends on the distribution among pensioners. In the contracts, PERP and Madelin, your pension depends on the capitalization, that is to say, the value acquired by the savings accumulated up to the retirement age, modulated obviously by your life expectancy (estimate of remaining life) at the time of retirement. Media financial performance improve your pension. Of poor media the limit.

The contracts are cumulative. They are transferable between contracts of the same type. A savings contract retirement you are a long-term commitment. This does not mean that you no longer have any room for manoeuvre. You can change the allocation of your portfolio, you can open multiple contracts with different management companies, or insurance. You can also transfer a contract, for example, if you're not satisfied, from one society to another, while keeping his seniority tax,

A savings défiscalisée and a life annuity

The PERP and Madelin contracts, savings and pension insurance are regulated. They work in three phases 1) savings, 2) conversion, and (3) an annuity. The phase of the savings is défiscalisée, while the annuity is subject to tax.
1/ During the phase-in of savings défiscalisée, the savings is blocked

The investor pays the contributions more or less regular basis. These payments are deductible from income, up to a ceiling high enough. You save in tax reduction, depending on your marginal tax rate, 14% to 45% of your payments which would have been collected if they were not deductible. The economy is all the more great that you are strongly imposed. The accumulated savings are also excluded from the base for the Tax on wealth (ISF).

The accumulated savings is blocked. They are placed on different media that we can evolve, but withdrawals, even partial, are impossible. This constraint is strong, but it is also a discipline that prevents them from "busting his retirement" prior to maturity.

In case of death during a phase of savings, the pension will be paid to the designated beneficiary or beneficiaries either in the form of a life annuity, either in the form of a temporary pension education if the children are minors. This default condition is to check.

The act, however, provides the possibility of unlocking the savings without penalty in the following exceptional circumstances :

Expiration of the rights to the unemployed in case of dismissal for employees.
Termination of activity by judicial liquidation for non-employees.
Disability of the insured or death of the spouse.
Situation of over-indebtedness.

2/ the pension savings is annuitized.

Has the pension, the pension is calculated on the basis of the accumulated savings and life expectancy of the policyholder, using mortality tables that estimate its remaining life span. We speak of the "winding" or "unwinding" of the contract. This liquidation shall take place between the date of the legal retirement age and a date calculated as a function of life expectancy, which is approximately between 62 and 75 years.

The mode of calculation of pension is quite complex. It takes into account the customization options of the annuity chosen by the policyholder, such as :

 If you would like to provide a partial reversion of the pension to your spouse or to your children in case of death , this option exists, but it has a cost : it reduces your pension.

The "annuities guarantees" guarantee you payments over a number of years. This option also has a cost.

You can modulate the annuity by choice, for example, between :

the technical interest rate, which anticipates a minimum return and increase the amount of the annuity during the first few years and then fall,

 Revaluation annual, which takes into account the investment performance of the savings and may cause the annuity to fluctuate.

Also note that the PERP allows you to convert only 80% of the savings into a pension and get out 20% in capital, or even 100% for the purchase of a first principal residence (see below).
3/ The annuity is paid until the end of the life of the insured.

The annuity ensures you an annual pension regardless of the age of your death, even if you (or the beneficiary of the option of reversion if you have taken one) live more than 100 years. It is the risk assumed by the insurer. In return, if you (or your beneficiary) die quickly after retirement, your pension is lost. It is your risk.

Your pension is subject to income tax and social contributions are specific to pensions and pensions after a deduction of 10%. As your income at retirement is usually lower, your income tax will be as well. You will need to pay also social security contributions. In 2017, the social security contributions vary from 0% to 7.4%, depending on your level of income.