Économie et Statistique n° 417-418 - Household Assets: Recent Developments
Retirement Saving and Redistribution
With more than two million holders, the Plan d’Épargne Retraite Populaire (PERP), introduced in 2003, occupies a central position among French funded retirement-savings instruments. We examine its redistributive power by calculating the return on a PERP for standard situations that vary according to socio-occupational category, sex, and marginal tax bracket. We use the concept of internal rate of return (IRR), i.e., the discount rate at which the present value of total expected returns will match the total cost of the investment. The return gaps are wider between socio-occupational categories than between sexes. Among men, managers and higher-level intellectual occupations display a 0.9-point gap in returns with blue-collar workers. That translates into a difference of about 17% in annuities and tax savings for the two groups. The gap is narrower for women because of the smaller inequality in life expectancy. Other inequalities are due to the PERP tax regime, which exempts contributions from income tax while holders are economically active, then taxes annuities during retirement. It introduces yield gaps of up to 0.75 points between tax brackets. Tax gains do not rise in a linear profile with income but fluctuate depending on whether or not holders move into a lower tax bracket on retirement. It is thus hard to characterize the impact of taxation as regressive or progressive. An alternative tax regime consisting in partial taxation of both contributions and annuities is more progressive but erodes the return—thereby reducing the attractiveness of saving for retirement.