Retirement savings plan: advantages and disadvantages of this investment for working people

Retreats animated the debate over the presidential election. Currently, the statutory retirement age is 62 years. Emmanuel Macron plans to bring him back to the age of 65. With our pay system (employee contributions for retirees), it is not surprising that older people are receptive to this measure and employees look gloomy.

We do not know what choice will be made after the consultation. Still, the numbers and demographic reality are relentless: in France, there are only 1.7 payers per pensioner, and this figure is deteriorating. As no increase in old-age pensions is expected, young workers must take responsibility if they want to increase their retirement age. By adding your own funded pension, you can earn extra income and even retire earlier.

How to do it ? You should know that the government encourages us to build our own funded pension. In fact, the PACTE law introduced in 2019 a special savings product: PER (pension savings plan). What are its strengths? What are its disadvantages? We explain to you.

Advantages of PER

PER works as an envelope to diversify your savings. Under this package, we can diversify our savings on euro funds (low profits but no risk of capital loss) or on ” units of account “(More or less risky investment funds, with the risk of capital loss). Among these units of account we can find equity funds, real estate funds and more. There is something for everyone. And there is a lot to make your money work well in the long run for retirement.

Specifically, capital invested at 1% (Book A) doubles in 70 years, but invested at 5% it doubles in 14 years! And we capitalize all the better because PER is a capitalizing envelope, that is, there is no tax until we leave PER (even if we sell value-added money within PER).

PER can be managed or free management. By default, PER operates in managed management, and this is appreciated by most savers. In practice, the saver responds to the initial questionnaire, and the manager adapts to his profile (safe or more or less dynamic). But for the most knowledgeable you can choose free management. In this case, the saver decides which PER funds he wants to invest.

PER makes it possible to reduce the taxation of payments. In fact, we pay when we want for our PER. And if we pay, the amounts paid are deducted from our taxable income. For example, if we pay 5,000 euros, the tax authorities reduce our taxable income by the same amount, which will save 1,500 euros of income tax in the marginal tax group of 30%. To effectively reduce taxes, you need to know your marginal tax group (TMI). Obviously, if you do not pay the tax, the PER is not fiscally attractive.

Disadvantages of PER

PER is not a liquid product of savings. That is, you cannot withdraw your money when you want a PER. As the name implies, it is a product of pension savings, so it is not allowed to leave it until reaching the legal retirement age. Exceptions: purchase of the main place of residence or an accident in life (disability, over-indebtedness, etc.). So be careful not to save too much on PER, it is better to save liquid savings, especially on life insurance.

Exit taxes can be high. In practice, there are two ways out: an annuity and / or equity. If we decide to receive an annuity, the insurer takes control of the capital and pays us a monthly annuity. And if we prefer to go to the capital, we keep control and go at our own pace, for example, part of each month. In both cases, the capital that was exempt from tax at the time of payment is subject to income tax (if you do not leave due to an accident in life). Thus, we win if our marginal tax category is lower at retirement (the most common situation, as we usually have less income in retirement), but we lose if we go with a higher TMI than during our payments.

PER sold on the market is often charged a very high fee. There are dozens of PERs on the market and their quality is very uneven. Many PERs charge a fee (up to 5% of the entry fee!) And a management fee of about 1% per year. To give you an idea, the best PERs have no payout commission, and their annual management fee is about 0.60%. Also, good PERs work better because they provide access to better funds. Therefore, you should choose your PER carefully, as in the long run it has a strong impact on performance less fees.

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