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Retirement savings by capitalization, a new El Dorado ... really?

84,000 is the number of new retirement savings plan contracts that have been opened since October 1, 2019, the date on which the “Retirement Savings Plan” (PER) began to be distributed in France. This PER was created by the Pacte law in order to simplify and harmonize the supplementary retirement market. As for the old products, they will no longer be marketable after October 1, 2020. The government’s objective is clear, to make retirement savings the benchmark savings for the French, whereas it currently represents only 200 billion euros against 1,700 billion in life insurance. Most players have embarked on this product, but is it really the El Dorado of private insurers, as we have read on the sidelines of the debates on the pay-as-you-go reform?

This impression can be given by the very encouraging start of PER, the players in retirement savings agree that this product is an opportunity to revitalize the supplementary retirement market thanks to a more attractive offer. Indeed, retirement savings contracts are harmonized and their portability simplified. On the other hand, the pact law imposes transparency on costs and management managed by default.

This new framework changes the rules of the game and induces renewed competition in the market ; the historical players in the supplementary retirement market will seek to consolidate their positions. The new challengers will take advantage of this new product to launch their first retirement savings offer with the aim of covering all customer segments. All, for example, hope to be able to take advantage of the abolition of the social package to attract SMEs that are very poorly equipped with retirement savings products. Partnership strategies are implemented between insurance operators on the one hand and employee savings and asset management companies on the other.This market dynamic can only be beneficial for policyholders on costs, or on improving the customer experience.

However, the good launch figures must still be put into perspective with regard to the favorable conditions for the product launch. The PER took advantage of the rule of averaging the tax deduction following the blank year which, on the other hand, penalized the collection of the PERP. It also benefited from communications from insurers on the declining yields on euro funds in a negative interest rate environment. Under these conditions, we could have hoped for better results

In addition, the retirement savings product still faces a major competitor, life insurance,which retains all its interest especially with regard to taxation. However, with all the possibilities offered by the PER to improve its attractiveness vis-à-vis life insurance, the PER ultimately becomes much more complex. A complexity that requires personalized and sustained advice throughout, both in the sales phase and downstream in terms of management. The negative interest rate environment will also oblige insurers to clearly define the marketing policy of the offer with regard to the client’s overall assets in order to respect the duty to advise in cases of repayment on the contract or transfer for example. In addition, the offered choice of capital outflow will require a lot of education from distributors. Indeed,policyholders tend to underestimate their life expectancy and overestimate states of health which could lead to a strong demand for capital outflows and make people forget thattoday, taking out an annuity is the best cover against the risk of longevity. To do this, the training of sales forces is essential and the support of advisers via digital solutions must be initiated.

The lifecycle of the PER being by nature long, the role of support and communication must embrace this long cycle throughout the customer journey. Also the manager will play a key role during the life of the contract and particularly to facilitate transfers . These transfers must be operational before October 1, 2020 and insurers will have until December 31, 2022 to limit the assets corresponding to the PER.

The PER is therefore a very interesting product, which revitalizes the supplementary retirement market, however, we must not forget or minimize the role of managers and sales forces to perpetuate this good start. In the coming months, it will be interesting to analyze the responses put in place by the various players: mutuals, brokers, bankinsurers, insurers and insurtech in terms of customer relations to attract and / or retain their policyholders.

 Rhalid Bouakhris, senior consultant

 

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