What is a pension fund?
Retirement fund: definition
Pension funds, also called pension fund, are structures (collective investment organization) which collectively take care of pensions and employee savings. These institutions operate by capitalization and place the money collected on investment funds used to provide retirement and savings services to employees of a company.
Funds fed by employees and managed by investment professionals
Employees fuel the fund during their career. The money represented by the mass of individual contributions is invested in the financial markets and managed by investment professionals in order to maximize its return for the benefit of members.
Each employee contributes personally and savings the amount he wishes. At the time of his retirement, he received a sum proportional to the financial effort he has made throughout his career in the company.
How do pension funds work?
Constitute savings in the form of capital or rent
The pension fund is therefore an investment fund, which is characterized by capitalizing only for retirement. It is created by private or public companies, to constitute savings for the benefit of employees, in order to ensure them a income in the form of capital or rent to their retirement, in proportion to the capital paid.
Savings made up of the employee and the company
This savings is made up of employees, on a personal basis, but generally also by the company participating in savings. Membership is sometimes compulsory, sometimes optional. It is therefore one of the forms of retirement savings. We can compare the pension fund, which exists in a collective format (Perco), In terms of retirement, which would be the individual version.
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What are the different types of pension funds?
There are two main types of pension funds whose operations are diametrically opposed. It is advisable to have assimilated their difference before subscribing to it.
Defined contributions funds
In the case of defined contributions funds, the amount of the pension depends on the performance of the placements carried out. In France, the PER (retirement savings plan) is an example. This type of contract is intended for employees and self -employed. The funds made up of the payments of members and those of the company are placed in financial products. The choice of supports is decided in common agreement with the contributors.
These will not be able to know the amount of the services to be received on the day of their retirement. It will depend on the market conditions and the yields obtained. In this system, the risk is assumed by contributors.
Pension funds with defined benefits
Only the employees of the company can join the defined service pension fund. The amount of the pension received by the retirement beneficiary is determined in advance according to criteria such as salary and seniority. This system is rare in France.
The amount of the pension paid to the employee’s retirement is here defined here, as soon as the contract is signed. This guarantee is made possible because the company will then feed the fund according to the distribution which will be commonly defined with the employee. This undertakes to pay the predetermined sum, based on a percentage of the employee’s salary and to compensate for any losses on the markets.
Contributions are therefore not defined beforehand. Only the amount of the pension paid during the outcome is. In this model, the company supports risk. Also, if the pension cannot be lower than that determined during the contract, the company may be called upon to intervene more to compensate for possible losses, according to the health of the financial markets and the fruiting of the placements carried out.
What are the main pension funds in France?
To date, France has been weakly endowed with pension funds. It is also the country of the OECD where the weight of pension funds is the lowest.
The FRR (pension reserve fund)
The pension reserve fund (FRR) is a public administrative establishment created in 2001. Originally, it was to anticipate the surplus of retirement expenses generated by the “grandpa”. To do this, part of the retirement contributions he received was put into reserve and capitalized.
But the 2010 pension reform led him to modify its operation. Since then, it has no longer perceived new resources and has only been fueled by the financial management products of assets. Similarly, it pays 2.1 billion euros each year to the CADES (Depreciation fund of social debt) and proceeds to possible payments to the CNAV (National Caisse d’Assurance Vieille).
The law of August 7, 2020 relating to social debt and autonomy then changes the liabilities of the fund. Thus, until 2033, the fund had to pay CADES each year to CADES 1.45 billion euros for financing the depreciation of this debt.
RAFP (additional public service regime)
RAFP (additional public service retirement) is a compulsory point of points, set up in 2005, for the benefit of state officials, territorial and hospital. Contributions, distributed equally between the agent (5 %) and the employer (5 %), are deducted from certain remuneration elements, such as bonuses or allowances within the limit of 20 %of gross index treatment. They are then converted each year into points.
At the time of retirement, the civil servants concerned benefit from an additional income, paid in the form of capital or annuity, and the amount of which depends on the points obtained and the service value of the point. The management of the RAFP was entrusted to the ERAFP (additional retirement establishment of the public service under the supervision of the State).
What are the additional pension plans that are assimilated to pension funds?
The prefon
The Prefon is a complementary and optional pension plan in points. It is intended for state agents, local authorities agents, agents of public administrative, industrial and commercial establishments, as well as agents of the hospital public service. It was set up in 1967 and provides for the contributors a capital or rent exit.
Corem
Created in 2002, the COREM (mutual retirement supplement) is a complementary points of points managed by the UMR (Retirement Mutualist Union). Initially reserved for civil servants, it is now open to everyone. At the start of retirement, the points acquired are converted in the form of a life annuity, a capital or a combination of the two.
Standardization of retirement savings systems
Since the PACTE law of 2020, Préfon and Corem have been transformed into PER (Savings Plan which corresponds a little to an individual pension fund), like the other types of individual pension funds that were the old Perp, Perco and other contracts Madelin law and article 83.
What difference with a retirement pension?
The pension plan is managed by distribution, while the pension funds are managed by capitalization. In a pension fund, the employee capitalizes for his own annuity while by contributing to his basic and complementary pension plan, he finances the pension paid to current retirees.
What advantages to invest in a pension fund?
Pension funds allow employees:
- to build up savings for retirement (alongside their personal savings effort, life insurance, PER and other investments.);
- to delegate its management (it is ensured directly by fund managers);
- to enrich their assets and provide them with additional income at the time of their retirement (which is very important at a time when basic regimes are no longer necessarily sufficient).
If the pension funds have advantages, they also have some disadvantages, the main one of which is the dependence on the results of the long -term financial market holding.
How to recover or withdraw your pension fund?
The recovery of contributions paid on a pension fund depends on the type of contract and the rules that govern it.
At the time of retirement
Generally, the exit is done at retirement age. The beneficiary can choose between a payment in the form of a life annuity (perception of a regular income for life) or a capital payment. Some devices allow a partial capital output (generally up to 20 %) and the rest in rent.
Anticipated outlet
There are specific cases in which it is possible to recover your savings before retirement age, such as disability, the death of the spouse or the cessation of independent activity. Some PERs allow an early outing for the purchase of the main residence.
Fund transfer
In the event of a change of job or cessation of activity, it is often possible to transfer your savings from one fund to another, especially in the context of PERs.
