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Retirement in France: how does it work?
All employees in the private sector and self-employed workers must contribute to the AGIRC-ARCCO pension fund for their basic and supplementary pensions. The French pension system operates on a pay-as-you-go basis with the active population funding the pensions of current retirees. The retirement age is currently set at 62 (other than in special cases). The amount that will be paid on retirement will depend both on the number of months contributed and the level of salary received. It’s important to know that the basic pension and the compulsory complementary pension do not fully replace income received when working! On average, an employee will only receive 60% of their former salary once they have retired. To calculate the amount of your future pension, contact AGIRC-ARCCO.
So what can you do to anticipate and reduce this drop in earnings? It’s possible to take out a Retirement Savings Plan (RSP), with several options:
– The company introduces a compulsory RSP: if it’s part of your collective bargaining agreement, or if you want to help your employees prepare for their retirement in the best possible way, you can opt, as an employer, for a compulsory company RSP. Both the employer and the employee will pay into the plan.
– The company introduces an optional RSP: in this case, paying into the RSP isn’t compulsory.
– You opt for an individual RSP: you have this option if you are self-employed or if your company does not have a pension plan.
Offering a RSP to your employees, or taking out an RSP on an individual basis, is a way of supplementing your income once you retire: but you need to prepare in advance!
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What are the advantages of the RSP?
Opting for an RSP supplements the basic compulsory retirement scheme. It’s also important to know that the RSP can reduce your taxes: this is because voluntary and optional payments into an RSP are tax-deductible! This tax advantage means you can reduce your taxes while preparing for retirement. This system allows tax deductions up to the level of a personalized annual cap. This cap, which can be accrued over a period of 3 years, is shown on your latest tax notice.