When it comes to savings, every detail matters. Your investment horizon, the risk you are prepared to bear, the level of fees deducted, the performance of the contract and the taxation that applies to it must in particular feed your reflection. To choose the product that best suits your expectations, you can of course have competition between contracts in order to subscribe to a profitable product with low costs. Note in this respect that, since June 1, insurers and distributors of life insurance and retirement savings plans (PER) have the obligation to present all the costs levied on the contracts offered in a summary table available on their website.
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But, in view of retirement, a first question arises: is it in your interest to take out life insurance or a retirement savings plan? Beyond the performance expected from products that are similar in many respects, since the overwhelming majority of PERs are built on the life insurance model, a major difference should be noted between the two envelopes: their taxation, entry but also on exit, and in particular during a one-time purchase on retirement.
Two envelopes, two taxes separately during the redemption
On life insurance taken out for more than eight years, the gains made support at least the social contributions of 17.2%. They are also subject to a flat-rate deduction of 12.8% (7.5% for premiums paid before September 27, 2017), with an annual allowance on interest of 4,600 euros for a single person or 9,200 euros for a couple. .
On the PER side, the payments are – optionally – deductible from taxable income. Then, when the plan is redeemed, that is to say when the pension is liquidated, this capital is taxed at the progressive scale of income tax. Capital gains are subject to a single flat-rate levy (PFU) at the rate of 30%, a “flat tax” (17.2% social security contributions + 12.8% flat-rate levy). But the subscriber can also choose, when it is profitable for him, to be taxed on his capital gains up to social security contributions of 17.2% as well as the progressive scale of income tax. He then benefits from the deductibility of part of the CSG (6.8%).
In short, two tax envelopes with two very different tax regimes. For life insurance, reduced taxation on gains made throughout the life of the contract. For the retirement savings plan, a particularly interesting entry tax advantage when your marginal tax bracket (TMI) decreases on retirement, for example if your TMI drops from 30% to 11%. But not only, since the PER contains a tax interest of its own, in the form of a cash advance, or rather a “zero rate loan”. Because even if your TMI does not change at retirement, your tax savings generate interest throughout the lifetime of the PER, which inflates your capital and boosts the profitability of your investment.
But as often, the figures are much more telling than these theoretical explanations. We therefore asked Eres, a specialist in retirement and employee savings, to carry out several simulations. While each of the profiles studied differs, certain assumptions do not change, mainly for the sake of simplicity and understanding. Thus, for life insurance as for a PER, we have chosen to retain an investment period of 25 years and an annual return net of management fees but gross of taxation of 3%, which corresponds for example to an allocation distributed 50% on the euro fund and 50% in units of account (UA). For the PER, the saver chooses each time the deductibility of the payments. At the end of the investment period – ie at the end of retirement – the two envelopes are redeemed in capital over 2 or 4 years, and this, to avoid the flat-rate deduction in life insurance.
Profile 1: single with 35,000 euros in income, 1,000 euros invested each year
First profile-type chosen: a single person with 35,000 euros of net taxable income, which places him in the marginal tax bracket of 30%. He invests 1,000 euros each year in a retirement savings plan. His net savings effort is limited to 700 euros because the deduction of the 1,000 euros invested gives him a tax saving of 300 euros. On the other hand, if he opts for life insurance, with an equivalent savings effort, he can only invest 700 euros since his investment does not provide him with tax savings.
After 25 years, with an annual return of 3%, the savings accumulated on each envelope differ logically. Indeed – and it is useful to insist on this point -, it is 1,000 euros which are invested each year on the PER, against “only” 700 euros on life insurance. Result: gross savings of 37,553 euros in total on the PER, against 26,287 euros on life insurance.
Two scenarios are to be studied during the redemption to determine the savings net of taxation of our single person. His tax bracket may be identical to his TMI in force during the payments (30%), or may have dropped to 11%.
At constant TMI, the taxation that hits the PER, i.e. the TMI of 30% on payments and the PFU of 30% on capital gains, reaches 11,266 euros. On the life insurance side, only interest is subject to social security contributions of 17.2%, for a total tax of 1,511 euros. Net of tax, the capital recovered on the PER is then displayed at 26,287 euros, against 24,776 euros on life insurance. The retirement savings plan thus yields 1,511 euros more than life insurance, ie an additional capital gain compared to life insurance of 9% ((1,511/(25 x 700)).
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A differential that increases significantly if the income of our single person declines at retirement and pushes him into the marginal tax bracket at 11%. No impact for life insurance, the taxation applicable to interest not depending on the TMI. It is quite different for the PER, since taxation on capital (payments) is reduced to the tune of this TMI, and capital gains are taxed with social security contributions and, optionally, at this TMI. Along with the benefit of a CSG deductible on these capital gains of 6.8%. Thus, while the gain made on life insurance does not change, that made on the PER climbs. Savings net of tax reached 31,537 euros, for a comparative advantage of 6,581 euros against life insurance. Translation: with a total savings effort of 17,500 euros, or 700 euros for 25 years, the PER yields 38% more than life insurance.
Profile 2: single with 80,000 euros in income, 2,000 euros invested each year
Our second typical profile is a single person whose net taxable income of 80,000 euros places him in the TMI of 41%. Comfortable income that allows him to pay 2,000 euros annually, invested at his choice on his PER, for a savings effort of 1,180 euros. If he decides to invest in life insurance, without tax benefits, he can only pay 1,180 euros for an equivalent savings effort.
After 25 years of savings, and still with an annual return of 3%, gross savings on the PER reached 75,106 euros, against 44,313 euros on life insurance.
Assuming an unchanged tax bracket on retirement, taxation on the PER is displayed at 28,032 euros, for a net value of the envelope of 47,074 euros. On the life insurance side, net savings are limited to 41,765 euros. The difference of 5,309 euros then represents 18% of the total savings effort of 29,500 euros (1,180 x 25).
And this gap takes off at 37%, or 10,809 euros, assuming that our bachelor’s TMI drops to 30%.
Profile 3: couple with 100,000 euros in income, 2,000 euros invested each year
Last profile, that of a couple declaring a net taxable income of 100,000 euros, which places them in the marginal tax bracket of 30%. He can make a payment of 2,000 euros on a PER, or 1,400 euros (2,000 – (2,000 x 0.30)) on life insurance.
After 25 years of savings paid 3% per year, the couple finds themselves with a retirement savings plan filled to the tune of 75,106 euros, against 52,574 euros on life insurance.
If he retains his TMI of 30% upon liquidation of the plan, the net value of the PER is displayed at 52,574 euros, against 49,551 euros for life insurance. Once again here, the retirement savings plan brings in more, 3,023 euros exactly. And if the TMI falls to 11% at retirement, the difference soars to 13,162 euros. That is a differential, in comparison with the total savings effort, of 38%. Proof of the tax interest of PER compared to life insurance.
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