French pensions

If you work or have worked in France, you are entitled to a French pension. This is actually one of the things you pay contributions for! A lot of you confuse contributions and income tax. Although they both hurt, they are not the same. Contributions are what you pay towards health, unemployment, pensions, etc and you pay that to either RSI, MSA, URSSAF, etc and it is a % of your turnover ( if you are auto-entrepreneur) or a big amount each year (if you are micro, SARL, etc.).

So how does it work and more importantly how much could you get! This article will only give you a broad view of it so for more in depth details, contact me!

• The great principle of pensions

The system itself is a shamble! Because it is the workers who pay for the pensioners! That was OK in the 1960’s as they were 4 workers for 1 pensioner but now the ratio is 2 for 1 and forecasted to be 1.2 for 1 by 2030. This is why successive French governments are doing reforms all the time (average one per year). It is basically so they can give us less and less!!

The main principle in France is that provided you have worked for 42 years, you can retire from 62 year old (no difference between men and women). But in order to have worked 1 year, you need to accumulate 4 quarters (4×3 months) so the French government does not count how many years but how many quarters. As an auto-entrepreneur, you need to earn a minimum amount per year to at least register one quarter!

• How is it calculated

They are 2 pensions: The basic old age pension and the complementary pension. Both are government pensions and are an obligation to contribute towards!

1. Basic Pension

It depends on what job you do so you could contribute to either R.S.I., M.S.A., CNAVPL, etc (each type of job has its own pension scheme) but how much you will get is calculated the same way and based on 3 criteria:

 -The average of your best 25 years of salary

-A % between 0 and 50 depending on how long you have worked during your life (at 67 years old, it is automatically 50%). Note that the years you have worked outside of France count as long as you can prove them (salary slip for example).

-The number of quarters you have worked in this particular job type divided by the reference of number of quarters (172 quarters are necessary if you are born after 1973, less if borned before). E.g.: You could have worked as an artisan 10 years and as a gardener 5 years so 10 years with RSI and 5 years with MSA so you would get 2 different basics pensions (one from RSI and one from MSA).

This is the formula: (average wage X 50 %*) X (Nbre of quarter’s worked/ 172 semester)

*if you have worked 42 years during your life.

E.g.: My best 25 years average wage was 15000 euro and I worked in France and the UK (need to be able to prove it) for a total of 42 years (so I am entitled to 50%) and I have worked as an artisan (RSI) for 28 years (112 quarters) so my basic pension from RSI will be (15000×50%) x (112/172) = 4883 euro per year!! This amount is to be added to other basic pensions (maybe also from UK) and the complementary pension. In any case, the maximum pension you can get from your basic pension is 50% of your average earning.

1. Complementary pension:

This one is a bit easier to understand. When you pay your contributions, you buy some points. The more you earn, the more you contribute and the more points you have.

The value of the point for RSI is 9.1234 euro for 2015 (12.58032 for commerçants), so when you retire you multiply the number of points you accumulated by the value of the point. The value of the point changes each year and is reduced if you have not worked enough years. Note that the value of the point when you buy it is 17.309 euro!! Yes, it is not a joke, it is worth half less when you get it back!  

Obviously, different jobs, different complementary pensions and different value of points!! Would be too easy otherwise!

• Private savings:

You must have gathered by now that the best way to get a good pension is to do it yourself!! So what type of pension schemes are available for you in France:

1. Assurance vie:

Yes, I know, I keep going on about this wonderful saving account but this is because it’s brilliant! Not just because I get a commission for it!

This is the most popular one for pensions because it is flexible (You can stop and start your regular payment into it, the money stays available, etc.) and offers tax advantages once you retire. Basically, you save regularly when you work and when you want to retire, you can either take it out as a lump sum or as regular revenue or both! And if you had the policy for more than 8 years, this revenue will be tax free up to a certain limit per year.

1. PERP:

 This is only good in order to reduce your income tax during your working life as the government gives you a rebate depending on what tax scale you pay. If you are taxed at 5.5% and you put 1000 euro per year into a PERP, your tax is reduce by 5.5% of 1000 so 55 euro! So only good if you are taxed at 30% or 40%. It is not flexible as it is transformed automatically as an annuity when you retire and you can’t get to it before you retire.

1. Contrat MADELIN:

Same as PERP but for self-employed and even less flexible.

Conclusion:

The pension system in France can be quite complicated to understand and you deserve a medal if you have understood it all from my explanation above!! The problem is that it’s never the same whether you are a farmer, an artisan, a commerçant or an employee. If you really want to get depressed and know roughly how much you will get, you can contact me as we have a software which can calculate it for you. But because the government is changing the rules all the time, and never in our favour, you are better off getting it prepared yourself by opening a saving account than hope for the best! So don’t hesitate to contact me to see which saving scheme would be more appropriate for you.