FIDUCIE AND RETIREMENT: GIVING UP NEVER PAYS
Is the pay-as-you-go pension system doomed?
No one is under any illusion any more: in the years to come there will no longer be enough money to pay retirement pensions at their current levels.
The finding is threefold: first, because there are fewer and fewer people in work for each retiree; next, because there is a structural decline, on every continent (with the exception of Africa), in births and in demographics; and lastly, because the French no longer contribute for long enough.
While the whole of Europe is preparing to work until 70, a large proportion of the French are fighting to retire only at 67 and, if possible, to return to retirement at 65.
The situation is untenable in economic terms, yet the government is choosing, for political reasons, to suspend the reform in the short term, at the risk of aggravating the situation in the long term.
Yet history teaches us that there is never anything to be gained by giving up.
There is therefore now open consideration of altering the pay-as-you-go pension system, opting sometimes for a points-based pension and sometimes for funded provision. Both solutions are, however, a trap set for those in work today and for tomorrow’s retirees. On the one hand, because those in work today continue to contribute every month for today’s retirees. On the other hand, because that money will never go towards funding their own pension, since there will not be, tomorrow, a strong enough demographic base to support the number of retirees who will then have to be paid.
In other words, today’s employee or company director pays for others while being assured that no one will pay for them tomorrow, all the more so as the pension system is already running a substantial deficit.
A sacrificed generation ?
This is why several analysts now speak of a sacrificed generation. The generation that will pay for the others without enjoying the same consideration in return for itself, in order to bear the passage from one system to another.
In this context, our reader has two options, one of which is doubtless better than the other:
First, to resign himself to fate and wait for the inevitable to strike him in a few years’ time. Rather like the drunkard who looks for his keys under a streetlight, not so much because he lost them there as because that is where the light is… in other words, to give up.
Second, to refuse to give up and to take matters in hand by organising his own financial security here and now.
To these structural difficulties of the pension system must be added the fact that, within ten to twenty years, unemployment rates (and therefore the number of economically inactive people to be compensated) are likely to be far higher than today, owing to the meteoric development of artificial intelligence and robotics.
The threats are numerous and come from different quarters. It is therefore appropriate to prepare for them now.
At this rate, it is inevitable that the State will soon be unable to honour the pensions of future generations, that deficits will continue to grow, and that the most affluent will leave because of excessive taxation.
Yet society gives too little thought to the great problems it will soon have to face. Today it is almost entirely bent on a single objective: criticising those who govern it. Whatever they say, whatever they propose, whatever they explain, whatever they do, the population no longer wants them. This obsessive rejection translates into an implicit programme common to every opposition which, once in office, will do nothing other than take from the richest, or even from the less poor, for the sole purpose of maintaining the social model and the institutional system as they are.
Faced with this abdication, the world of tomorrow now taking shape will bring a rise in taxes that will drive away investors and entrepreneurs alike, accompanied by sovereignist forms of selfishness that will drive away talent.
On this assessment, there is then no reason to be surprised to see France, year after year, falling back on every possible criterion: social justice, public debt, budget deficit, trade deficit, balance of payments deficit. Nor any reason to be surprised that purchasing power has risen more slowly in France than in Germany and that poverty has risen there faster than elsewhere. Still less reason to be surprised that entrepreneurs and capital are leaving and that all French people are now inhabited by an existential anxiety in the face of the Himalayan challenges of the future.
In this context, it is therefore more vital than ever to put in place, while there is still time, the tools and arrangements that will tomorrow serve to protect not only you but also those close to you.
The annuity fiducie
The annuity fiducie : preparing your own retirement
The annuity fiducie (the French-law fiducie) consists in concentrating in a dedicated patrimony, whether for oneself or on behalf of a third party, all or part of one’s wealth with a fiduciary avocat.
Placing that wealth in fiducie will make it possible to ring-fence it.
That Fiduciaire will have sole responsibility for managing the capital by investing it and for paying the annuity and/or applying it to the payment of the expenses of a retired person or of a vulnerable adult.
The risk of non-performance of the obligation to transfer the death benefit into fiducie is removed by the instruction given to the insurance company to pay the capital to the notaire in charge of administering the estate of the parent who took out the policy.
Since the mission given to the Fiduciaire is freely defined, it is possible to provide for all manner of cases in which the Fiduciaire may release sums for certain expenses to be incurred by the vulnerable adult.
Regaining control of your financial future
For the reader who knows he cannot halt the march of the world but who, nonetheless, refuses to resign himself to that fate, we recommend turning his attention to the following points:
Taking your future seriously, truly.
By this we mean that it is not enough to open a Plan Epargne Retraite or a life insurance policy, to set aside 100, 200, 500 or 2.000 euros a month (according to one’s means), or to buy a property to let. Unless one holds considerable capital, these solutions – respectable though they are – are no more than fig leaves in the face of a far broader issue and problem. Better to be clear-eyed: one does not empty the ocean with a teaspoon.
What is required is an in-depth study of the situation, of the objectives and of the specific constraints to be grasped, in order to define a course of conduct over the long term and to hold to it. Your future and your financial security require a continuous, regular and rigorous investment, just as your private life does.
You will not succeed alone.
The world has become so complicated that, whatever your level of skill and experience, you will need to be well surrounded in order to (i) identify the risks (ii) put in place the solutions capable of meeting them (iii) ensure the durability of those solutions over time and (iv) cope with the vicissitudes of life and be able to adapt to the constant changes in legislation.
On this point, do not stint on the quality of those who protect you, secure your legal position and protect your wealth. No one would be foolish enough to place his life in the hands of a surgeon whose reputation and experience were not beyond reproach.
Nor should you do so with your financial future. For everything that touches upon vital interests, you quite simply need the best.
Being clear-eyed and not losing time.
Lastly, you must be clear-eyed, and profoundly so. Clear-eyed in the sense that you will have to accept adapting your strategies, on the recommendations of your advisers, to changes in the environment, yet without following fashions or yielding to the sirens’ song. You will sometimes have to accept making sacrifices and compromises in order to reach the goal.
The aim here is not to take hasty decisions according to moods, necessarily changeable, so as to relieve an immediate discomfort but, on the contrary, to know how to hold to a demanding rigour with a view to a far greater result. Thus, when in a few years you contemplate the road travelled and the privileged position in which you find yourself, reaping the fruit of your efforts compared with those who did not show that same rigour, you will be able to savour that delicious feeling of saying: We did it!
That rigour, far from being merely rhetorical, will enable you to secure your independence and your autonomy with, for example, a fiducie rente (the French-law fiducie) which will undertake to guarantee you a standard of living commensurate with your needs.
*
History teaches us that the promises of the State, like those of most people, do not withstand the test of time. We have all known friends, colleagues or partners ready to make grand promises at the outset of a relationship but without being, in reality, capable of honouring them over time; whether after a week, a year, three years, thirteen years or fifty years matters little: the undertaking given was not kept, and this breaking of one’s word always has grim consequences. Even if it is often, afterwards, those same individuals who end up regretting their own betrayals when they finally measure the importance of what they have lost. That is why one never gains by giving up.
States, unfortunately, do not escape this sad rule either, and few are those capable of abiding by it towards their own populations. General de Gaulle recalled as much, with cynicism: « States have no friends, they have only interests. »
But States, in vast contrast to individuals, have no limited lifespan, and today’s citizens will no longer be of this world in a century’s time to recall those unkept promises. Each generation being, in the end, untouched by the ravages of time that the preceding generation had to endure, not having lived through them directly.
Nevertheless, we know that these waywardnesses of the soul are never inevitable and that, for those capable of keeping their word, the reward is always commensurate with the effort made: respectability, trust, standing and prosperity.
Such has been, for centuries, the mark of the great houses and the great nations.
But for those who, like us, consider that nothing is more precious than one’s given word and who take their future seriously, the fiducie has serious solutions to offer, and with good reason: they were designed and conceived more than 2.000 years ago already, in Roman times, to withstand the torments of time.
So, each time you are tempted to renounce your own commitments: Remember this maxim of the Roman Emperor Nerva: “numquam lucramur cedendo” (One never gains by giving up).
Nerva, “numquam lucramur cedendo”
Frequently asked questions on the French-law fiducie and retirement
How can the fiducie supplement my pension?
The fiducie-rente makes it possible to ring-fence capital entrusted to a Fiduciaire, who manages it and pays a regular annuity to the Beneficiary. It is a bespoke retirement supplement, independent of the vagaries of pay-as-you-go schemes.
Is the fiducie safer than a conventional pension contract?
The fiducie offers a strong guarantee: the assets placed in fiducie form a separate ring-fenced patrimony, protected from creditors and managed strictly in accordance with the Settlor’s wishes, which not all retirement savings products allow.
May I provide for an annuity to be paid to a close relative after my death?
Yes. The fiducie makes it possible to arrange for an annuity to be paid to a spouse, a child or a vulnerable relative beyond the Settlor’s death, by entrusting that task to a professional Fiduciaire.
From what amount does a retirement fiducie make sense?
The fiducie is aimed above all at significant private wealth seeking secure and personalised management. A prior wealth review makes it possible to verify how appropriate it is compared with other solutions (life insurance, PER).
Who manages the funds placed in fiducie?
The funds are managed by a Fiduciaire, often a fiduciary avocat, bound by a precise mandate defined in the contract and by a duty to render account. The Settlor retains control over the objectives assigned to the management.
The House of Harlington since
2006