Legislation aimed at revising rules governing retirement savings to provide savers with greater flexibility and capital to French businesses is now law.
The changes under the new law, PACTE — Action Plan for Business Growth and Transformation, which have been considered since 2017 — remove an earlier requirement that defined contribution plan participants purchase an annuity upon retirement. Under the PACTE Act, which became effective Tuesday, plan participants will be able to choose lump sum or annuity and will have an option to withdraw retirement savings early to buy a primary residence.
"All citizens will be able to maintain and add to their savings products throughout their professional lives, and withdrawals of lump sums will be facilitated," the French government's website said. The new legislation among other provisions, intends to reduce the number of defined contribution plan categories and ensure that retirement savings are portable. The French government wants retirement options to be more flexible and simple in both the accumulation and decumulation phases in efforts to boost assets in retirement savings plans to €300 billion ($328 billion) in 2020 from the current €220 billion.
As of Tuesday, one defined contribution program replaced four categories of DC plans: the mandatory supplementary collective plan, the voluntary collective occupational DC plans and two types of individual retirement savings plans.
Following a one- year transition period, which ends Oct.1, 2020, DC plan providers will no longer be able to sell the former savings and retirement products.
PACTE also aims at improving the security of savings of workers who work across the European Union, following the introduction of the EU's directive on retirement savings portability.
The changes under the new law also alter the provision of defined benefit funds because the pension payment would no longer be conditional on individuals being employed at the time of their retirement, according to consultant Mercer.
Commenting on PACTE Act, Christian Lemaire, global head of retirement solutions at Amundi, said: "Amundi assists all its corporate clients to benefit from the new PACTE law and is already working with several of them to switch to the (new) collective PER."
According to a study by the French Treasury, PACTE's action plan—adopted by the French National Assembly in April — could lead to a 1 point increase in GDP over the long term and 0.4 points by 2025.