PER and life insurance, common points and differences
The Individual PER is a retirement savings contract, designed to allow you to secure additional income after your retirement. Life insurance is a kind of Swiss Army knife of savings: you can freely place your capital in it, and get it when you want. It can be used to finance a specific project, or simply to prepare for your retirement or your estate. Concretely, PER insurance and life insurance are 2 insurance contracts which then have some common points.
Subscription terms are flexible : the 2 envelopes can be opened by a natural person, regardless of age. Also, PER as life insurance can be taken out by an employee, a self-employed worker, a retired person and even a parent for their minor child.
Payments are free, both in their amount and in their recurrence. You can plan to save with some regularity, or make one-off payments. In the same way, if you benefit from an exceptional inflow of money (donation, bonus, …), you can completely pay it in whole or in part on your PER as on your life insurance, without restriction of amount.
The exit procedures are similar. As part of PER insurance, like life insurance, you choose to recover your savings in the form of capital (all at once, or in a split form), annuity, or a mix of annuity and capital.
You freely designate your beneficiaries. In the 2 contracts, you freely designate your beneficiary (ies). Your savings will be returned to them in the event of death.
The main difference is the availability of savings
On life insurance, your savings are available at any time. You have no constraint on the duration of contract ownership or seniority. On the PER, your savings are available at the time of your retirement. Of course, there are cases of early release of your savings (in the event of life accidents or in the event of the purchase of your principal residence). But the philosophy of PER is to reserve this savings for your retirement. Therein lies the most structural difference between life insurance and PER.
PER: for a retirement objective
The objective of the PER is to provide you with additional income at retirement. In this logic, the sums that you save on your PER are blocked until the legal retirement age, or until your effective retirement.
Your savings are therefore rather invested over the long term. Also, to optimize the management of this savings, the Pacte law introduced a specific management method – and regulated by regulation – for the PER, managed management. The purpose of this management method is to find the best balance between the search for performance (in return for riskier investments) and security (in return for a currently very low return), taking into account your retirement maturity. The closer you are to retirement, the higher the share of secured assets. Managed management is the default management mode for PER (you can also opt for free management if you wish). It does not exist in life insurance.
If your savings are built up for a retirement goal, there are however a few cases of early release. One of the great new features of the PER is to allow you to unlock your outstanding amounts for the purchase of your main residence. If opening a PER for the sole purpose of buying your home is not advisable, this is a considerable flexibility. Five other cases of early release have also been planned to protect you from life accidents.
Life Insurance: for all your goals
Life insurance aims to build up and grow capital to carry out your projects. These can be variable (finance children's studies, save for work, prepare your estate, etc.), and you don't even need a specific objective. His exit conditions are indeed very flexible. Your savings are available at any time: you can choose to buy all or part of them when you want.
The tax advantage, on entry or exit
PER: a tax advantage at entry
When you save on a PER, the amount of your payments is deductible from your taxable income, up to a certain limit. Your tax savings depend on your tax situation, and your marginal tax rate. In summary: the higher your income, the higher your tax level, and therefore the greater the tax savings.
If you benefit from a tax saving at the entry of the PER, your withdrawals will however be taxed at the exit. It is often advantageous if you consider that your income from work is higher than the income you will receive after retirement. So your tax rate at retirement should be lower than your current tax rate.
This is a major difference with life insurance. On a life insurance contract, your payments do not give you any tax advantage, but the exit tax is lower.
Life insurance: reduced tax at exit
Whether it is an exit in annuity or in capital, the tax on exit from life insurance is reduced compared to that of PER. This is normal, you have not saved any taxes by paying on your life insurance.
Regarding the annuity
The annuity from life insurance follows the so-called life annuity scheme for a fee: it is subject to income tax after an allowance of between 30% and 70% depending on the age of the annuitant at the time of the liquidation of savings. Social security contributions of 17.2% apply to this taxable share, therefore also after the reduction.
The taxation applied to the annuity from a PER differs according to the sub-fund concerned (i.e. depending on the nature of the sums paid):
- If your voluntary payments have been tax deductible, then the pension is subject to income tax after an abatement capped at 10%. This reduction is therefore lower than that applied to the life insurance annuity. Social security contributions follow the life insurance regime (life annuity for a fee: subject to social security contributions on a fraction of its amount (fraction determined according to the age of the annuitant when the benefit comes annuity).
- If your voluntary payments have not been subject to a tax deduction, the taxation of the annuity is identical to that of life insurance.
Regarding the capital outflow
Under the PER, the capital from your deductible voluntary payments is subject to income tax. Gains (interest and capital gains) are subject to the single flat-rate deduction (30% including 17.2% from social contributions). For the capital resulting from your non-deductible voluntary payments, only the gains are subject to the single fixed withdrawal of 30%.
Conversely, in life insurance, the share of capital bought back is not taxed. Only the part linked to the products (interest) is taxed according to the date of opening of your contract and the date of your payments on this contract. For contracts opened since September 27, 2017, earnings are subject to the single flat-rate deduction of 30% (12.8% + 17.2% social security contributions). This tax is 7.5%
(+ 17.2% social security contributions) for contracts of more than 8 years. (This taxation is final in n + 1 when the cumulative payments over the year on 31/12 preceding the redemption is less than € 150,000).
Special case: the purchase of your main residence.
As part of the PER, you can unlock the savings made for the purchase of your main residence. But the taxation applied during this release is identical to that applied in the event of a capital outflow at the time of your retirement (when it is a question of voluntary payment). If you plan to recover your savings before retirement for the acquisition of the main residence, the incidence of taxation is therefore to study closely before choosing between PER and life insurance!
NB: it is possible, within the framework of a PER, to renounce the tax advantage during your voluntary payments. This option is especially interesting if you are not, or little, taxable. The exit tax is then lower, since only your
capital gains are taxed (under the single flat-rate levy and social levies).
Taxation in the event of death, more favorable life insurance
In the event of death, your contract is terminated. In a PER as in life insurance, if your spouse or partner of PACS is your beneficiary, your savings are passed on to him, and the sums are completely exempt from inheritance tax.
But as soon as your beneficiary is other, the amounts are taxed, and the calculations differ slightly between the PER and the life insurance. In the context of a PER, what determines the taxation applied is your age at the time of death: before or after 70 years. For life insurance, this is your age at the time of each payment: payments made before your 70s, versus payments made after your 70s. The plate is also slightly different.
For a PER:
- In the event of death before age 70: death benefits (premiums paid + earnings) benefit from a reduction of € 152,500, then are subject to a 20% tax between 152,500 and 852,500 €, then at 31.25% beyond. In the event of death after age 70: death benefits (premiums paid + earnings) are subject to inheritance tax on their total amount, after deduction of € 30,500 (all life insurance policies and all beneficiaries combined).
In life insurance:
- For death benefits corresponding to payments made before age 70: the taxation is identical to that of the PER in the event of death before age 70.
- For death capital corresponding to payments made after 70 years: capital corresponding to payments made (only premiums paid, interest is not affected) are subject to inheritance tax after deduction of € 30,500 (all insurance contracts life and all beneficiaries combined). Interest is completely exempt.
How to choose ?
First of all, remember that PER and life insurance are 2 complementary envelopes, not competing ones. Either one can help you prepare for retirement. It is therefore quite possible to distribute your savings between the 2 envelopes: one being available without constraint, the other being invested in the long term. Choose between the 2 depends on your goals and your situation.
Depending on your goals
Obviously your choice is made in the first place according to your objectives. If your primary goal is to prepare for your retirement, choose the PER. It also allows you to encourage yourself to a certain “discipline” by blocking your savings, thus facilitating the achievement of your objectives. You nevertheless benefit from the possibility of unlocking your savings in the event of a hard blow, or even to buy your main residence.
If preparing for retirement is a secondary objective, if you are very far from your retirement age, or if you do not have sufficient available savings, prefer flexible life insurance. Likewise if the preparation of your estate is a central concern for you.
As mentioned, these 2 envelopes are complementary. You can completely subscribe to these 2 products, and distribute your savings between the 2. Of course, you can change the distribution between one or the other envelope at the same time as your goals, or your situation (professional , family, tax, …).
Depending on the taxation
If your tax bracket is low, and / or immediate tax deduction is not your priority, then favor life insurance.
If you are well settled, that you have regular income, and even already a savings on side, favor the PER to benefit from the tax deduction. This is all the more interesting as your income is important. The higher your marginal tax bracket (TMI), the greater the tax savings. Thus, from a TMI above 30%, the return on a PER is necessarily higher than that of life insurance. This conclusion is reinforced in the event of a fall in the IMR at retirement. In this case, the return on the PER is increased, since the tax applied on the sums bought back is lighter than if the TMI had not moved.
What to remember from Per and Life Insurance
Ultimately, your choice will depend on many factors that are specific to you: your personal situation, and your goals. Here is a table that shows and compares the characteristics of each contract.
|Subscription||Any natural person without condition of age||Any natural person without condition of age|
|Payments||Free (amount and frequency)||Free (amount and frequency)|
|Exit procedures||Annuity, capital, or combination||Annuity, capital or combination|
|Early release of savings|
The sums are frozen either until the legal retirement age or until retirement.
However, there are 6 cases of early release: the purchase of the main residence and 5 cases of life accident
Savings are available and can be redeemed:
|Payment tax||Deductibility of taxable income (within certain limits)||Deductibility of taxable income (within certain limits) No tax benefit|
|Taxation in the event of an annuity|
Different depending on the compartments. For voluntary payments:
For employee savings, as for life insurance:
For compulsory contributions:
Lifetime annuity scheme for consideration:
|Taxation on capital outflow|
Capital from premiums paid : subject to income tax.
Earnings : subject to the single flat-rate levy (30% including 17.2% social security contributions).
(unless you waived the deductibility at the time of payment)
Capital from premiums paid : exempt
Earnings : taxed, depending on the opening date of your contract and the date of your payments on this contract.
|Taxation in the event of death|
Exemption for spouse or partner of PACS
Depends on age at time of death (before / after 70)
Exemption for spouse or partner of PACS
Depends on age at time of payment (before / after 70)
You now have all the keys in hand to choose the product that best suits your goals. Whichever one you choose, know that nothing both products are not incompatible. PER and life insurance complement each other very well, and nothing prevents you from dividing your savings between the 2 contracts. The recurrence and the amount of the payments being free, you can completely adapt the distribution of your savings on one or the other according to your personal situation.
Discover with our tool the solution (s) adapted to your situation.