Law establishes retirement savings funds

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On 20 February 1997, Parliament adopted a law establishing retirement savings funds. This legislation has a dual objective. Firstly, to provide private sector employees with a new retirement cover financed by capitalisation, and secondly, to strengthen the Paris financial market and balance the growing power of foreign institutional investors.

The bill on retirement savings funds, introduced at the initiative of the current ruling centre-right alliance, received the Government's endorsement and has been actively supported by financial institutions and employers. However, it has been fiercely criticised by the left-wing Parliamentary opposition and by all trade unions.

Optional cover for private sector employees

The retirement savings funds (plans d'épargne retraite) are optional membership plans that all private sector employees can join. In practice, they take the form of contracts to which employers subscribe on behalf of their staff. Insurance agencies known as retirement savings funds (fonds d'épargne-retraite) will be set up especially to provide this service. The funds can be established following a collective agreement (at company, industry or workplace level). However, if no agreement has been made within a six-month period from the beginning of negotiations, subscription to the plan may also result from a unilateral decision by the employer. Besides, one year after the law has come into force, employees who have no access to a savings plan through their employer will be able to ask for membership of an existing scheme.

These funds are intended to provide a life annuity from retirement age onwards. Membership is decided solely by the employee, and the contributions he or she will have to make, as well as the employers' top-up payments which may complement it, are entirely optional. Payments by both employees and employers will be counted as non-taxable income, up to a legally established ceiling. The employers will also be exempted from social security contributions up to a certain limit fixed by decree. Moreover, to encourage the investment of the money collected in shares, the law states that no more than 65% of the funds should be invested in bonds.

The bill's sponsors identify both social and economic advantages. Firstly, the French pension system will be strengthened by the addition of an extra level. There is presently a two-tier structure covering all private sector employees, composed of the social security system, plus mandatory supplementary pension scheme s run jointly by employers and unions. The retirement funds will round off this structure and will compensate for the fall in the return on investment of the existing systems. Secondly, they will provide the means to redirect savings towards the share market, and act as a counterbalance to foreign investors, particularly American and British pension funds, on the Paris stock market.

A law contested by unions and the Left

This bill is the result of a parliamentary initiative by the current centre-right ruling alliance. It has been strongly supported by financial institutions and especially by the French Federation of Insurance Companies (Fédération Française des Sociétés d'Assurances). Despite the opposition of the Minister of Employment and Social Affairs, it was supported by the Government. Within the ranks of French employers a few dissident voices were raised at first, but the CNPF employers' association (Conseil National du Patronat Français) finally backed the bill to the hilt.

However, unions and the left-wing parliamentary opposition criticised it vehemently. They consider that far from strengthening the French pension system, it may well destabilise it without really addressing the problem of pension funding. The criticisms were mainly directed at the way in which the social security contribution exemption will be applied to the employers' top-up payments. This perk, granted to optional plans, takes the equivalent resources away from mandatory pension plans and the entire social security system. The quality of insurance cover seems very likely to be reduced, just to benefit a small group of employees who are already relatively well-off. The Socialist Party has already committed itself to repealing this law in the event of it returning to power after the 1998 elections.

The bill was finally adopted by Parliament on 20 February. The Opposition challenged whether it was constitutionally acceptable, while Socialist senators (in the Upper House) put the same case to the Constitutional Council. Without wishing to prejudge the response given to this initiative, the bill will not come into effect until the autumn since its application necessitates a number of decrees, still to be dealt with by the Government.


This law introduces a new logic not only into the French social security system, but also, beyond that, into employment relationships. It transforms pensions into a commercial product offered by insurance organisations to employers. Hitherto, the whole approach has been supply-led, by the service providers (insurers mainly, and bankers), with no guarantee that the product developed would actually satisfy a strong demand on the part of the companies and workforce.

Moreover, there is now a break with the past in the way the French pension system is structured. While supplementary cover had previously been developed on a basis of collective bargaining, and the concept of joint management, this new type of cover has been imposed by law, and was pushed through against union protests. Among employers, it is probably the manifestation of a change in power relations between industrial employers' organisations, co-founders of existing supplementary systems, and financial sector employers, whose ideas were incorporated into the new measures.

The law on retirement savings could also have a wider impact on collective bargaining. It stipulates that, employment law notwithstanding, a company agreement or an employer's unilateral decision will not have to be modified following the conclusion of a more favourable agreement at branch level. It thus challenges a founding principle of employment law, which, in the case of conflicting standards, accords precedence to the one which is more advantageous to the employee. (Emmanuel Reynaud, IRES)

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