Two similar products, but different. The match begins like this: retirement savings plan (PER) and life insurance are in the hands of the same companies – the insurers -, with the exception of the rare PER backed by a securities account. This is why any PER is a life insurance contract. What’s there to get lost in? Let’s clear up the confusion. Despite similar legal packaging, these two investments are different.
Once the contract is opened, the operations of the two envelopes seem similar. Free payments are made, possibly recurring and automatic, while respecting the minimum amounts set by the company. But there is a major nuance: if your savings can be recovered at any time with life insurance, you will have to wait until you have retired with the PER. Hence its term “tunnel placement”, despite some cases of early release (life accidents, financing of the main residence, etc.). With its permanent liquidity, life insurance therefore remains a priority over the PER to build up a financial cushion. And, while it protects you against the temptation to empty your retirement savings early, blocking the funds inherent in the PER is very restrictive. Once retired, this lock is lifted, and the two financial products are then almost equal. Last notable element: the subscription age, more regulated in the PER, because reserved for adults and with subscription limited to 70, or even 80 years at best, according to the insurers. Conversely, life insurance is open to minors and up to 85 years of age in most companies. On the criterion of flexibility, the latter therefore wins hands down.
An argument hits home with wealthy households
However, the PER has a secret weapon: its entry tax regime. As a reminder, your payments are deductible from taxable income up to certain ceilings. The higher the marginal tax rate (TMI), the greater the tax savings will be. Example: with a TMI of 30%, 3,000 euros paid gives 900 euros less tax the following year. This argument hits home with wealthy households, especially since the PER deduction limits are generous: 35,194 euros in 2024 for employees, 85,780 euros for non-employees.
Added to these ceilings are those which have not been used over the last three years, a tax windfall for highly taxed households. Please note, payments made to other retirement savings schemes, particularly in companies, reduce this ceiling. With life insurance, you will not obtain any entry tax reduction. But upon exit, taxation will be much more lenient on your withdrawals, taxed at 12.8% for the first eight years of the contract, and at 7.50% thereafter (subject to conditions). Above all, you will then benefit from an annual reduction on the interest included in withdrawals of 4,600 euros for a single person, double for a couple. Enough to completely escape tax! However, you will not escape social security contributions of 17.2%. It is the opposite with the PER, since any capital withdrawn during your lifetime will go through the income tax box at the progressive scale, with capital gains being taxed at 30%. Ultimately, the tax will only have been deferred over time. But the marginal tax bracket may have fallen in the meantime, and you will have been able to invest the tax savings made during the granted period. On this level, the two envelopes therefore display distinct advantages which will appeal more or less depending on the profile and the objective pursued.
Third aspect to study: transmission. Life insurance remains widely used for this purpose due to its attractive regime in this area. Indeed, upon the death of the insured, the capital is paid to the beneficiaries designated in the contract without going through the inheritance box, with favorable taxation. Let us remember: for payments before age 70, each beneficiary has a reduction of 152,500 euros before gradual taxation; then, the reduction is only 30,500 euros (all beneficiaries combined), and beyond that the capital is taxed with inheritance tax (excluding interest). What about the PER? It navigates the same waters: free designation of the beneficiary(ies) and capital received outside of inheritance. Taxation, however, turns out to be a little different, since the age at death is taken into account, and not that at the time of payments, which makes it more unpredictable. Before age 70, the rules are identical to those for life insurance. Then, things become less favorable, with only a reduction of 30,500 euros on the paid-up capital. What to deduce from this? That the PER appears to be a very effective transmission tool if the spouse is the beneficiary. Systematically exempt from inheritance tax, the person will receive the capital of the PER without tax, whatever the age of death, knowing that upon entry the household had benefited from the tax exemption of the payments, not taken back at the exit. If the survivor himself holds a PER, he will also be able to exit without taxation, since the disappearance of the spouse is one of the reasons for early release. Another advantage: social security contributions are not due in the context of a transmission via a PER, whereas they are with life insurance. For any other beneficiary, it is better to favor the latter, assuming the most probable hypothesis that the insured person disappears after age 70. Please note: the tax reductions for the two products upon death cannot be combined.
Now let’s study the output modes. Whatever the product, there are two possibilities. First, with regard to the annuity, although not very popular with the French, it will be partially taxed if it comes from life insurance, whereas it will be fully subject to income tax in the case of ‘a PER (if you had a tax deduction during the payments). In terms of capital outflow, you can recover your investment in one or more installments with the two envelopes. In the PER, there is talk of “fractional capital”. Please note, the terms and conditions vary greatly depending on the insurers, with some providing for example a maximum spread over five or ten years, with quarterly or half-yearly payments. In conclusion, life insurance undoubtedly appears more flexible with withdrawals on demand, scheduled or not. The only constraint lies in the obligation to respect the minimum contractual amounts. Fiscally, life insurance is also a winner, since withdrawals will be taxed less. It therefore stands out as the ideal piggy bank for retirees, more than the PER, on which we can however continue to save (a priori until age 70 or 75 in most cases, even if Bercy is studying the possibility of remove this option). Why continue to add to your contract? Because the payments remain deductible, even if, in the absence of professional income, the ceiling is then limited to 10% of the annual Social Security ceiling of the previous year, i.e. 4,399 euros in 2024. This nevertheless allows retirees to continue to reduce their taxes. For the purposes of transmission, this advantage at entry will not be “taken back” at exit.
Financial management
Last point to take into consideration: financial management. With a few variations, the two envelopes prove to be more or less equivalent from this point of view, integrating a fund in euros – more profitable in the PER because not subject to annual social security contributions – and diversification supports – more numerous in insurance -life. Assessment? When it comes to retirement savings, the right strategy is undoubtedly to think by age. For a young household, priority is given to building up financial capital available at any time, then to acquiring their main residence. This is what life insurance responds to with its operational flexibility. Then, if the household’s professional income is increasing, the PER then stands out as a simple and effective tax exemption product. It remains to optimize its use, for example by investing the tax savings generated in… life insurance to build up liquid savings at the same time. It will often be unattractive to draw on your PER once you retire, given the full taxation of the sums withdrawn. It will be better to favor life insurance for personalized withdrawals protected from tax deductions and to transmit the sums stored in your retirement savings plan. Hence the interest in having both envelopes.
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