Opting out of the mandatory French pension scheme: a guide for impatriates
Companies play an important role in the retirement of their employees. Pension benefits are one of the most valued employee benefits. In many countries, employees are automatically enrolled in a mandatory pension scheme defined by law. Yet, there can be cases when employees may wish to opt out. In France, this is stringently regulated.
Anyone who exercises a salaried activity in France is in principle affiliated to French social security schemes, including a pension scheme.
Individuals employed abroad who come on a temporary mission to France within the framework of a secondment, also referred to as detachment, may be exempt from the French social security system based on either a European regulation or a bilateral social security agreements signed between the home country and France.
Since 2019, impatriates working in France outside the framework of a secondment may apply for an exemption from affiliation to the French pension scheme if conditions are met.
The derogation concerns the French mandatory pension scheme which consists of two pillars:
– the basic state pension administered by URSSAF ‘régime de base’,
– the complementary pension scheme, also referred to as AGIRC ARCCO ‘régime complémentaire’.
These pension schemes are financed both by the employer and employee. They account for a large part of French payroll taxes and contributions.
Opting out of French pension scheme – derogation for impatriates
Individuals can apply for the derogation if they are
– employees from abroad
– who are called upon to occupy a post in France.
In other words, eligible individuals are all persons with an employee status abroad who come to occupy a job in France under this status, for instance for the same employer. The employer can then be registered in France as a foreign employer with employees in France (‘ESEF’-Status). So the foreign employer will continue to be the official employer. This differs from an employer of record which is essentially a local French employer.
Opting out of French pension scheme – application process
To benefit from the exemption from affiliation and payment of pension contributions, employees must meet certain conditions and the employee and employer must submit a joint application to Urssaf.
It is recommended to apply at least two months prior to the planned begin date in France. If the employee starts to exercise the job in France before the derogation is officially granted, the employer must pay all mandatory pension contributions. After formal approval, the employer can request a refund.
The application has to be addressed to URSSAF via an official application form with supporting documents.
Conditions to be met
Essentially, two conditions must be met:
– The employee must justify that he benefits from a cover for the risk of old age assuming the payment of a minimum contribution of € 20,000 per year paid either to a French or foreign old-age insurance.
– The employee must not have been subject to the mandatory French social security scheme during the five preceding calendar years, except for certain secondary activities.
Duration of exemption
The exemption from affiliation is granted for an initial period of three years, renewable once.
Risks to be considered before opting out
As for the employer’s side, he should be aware of the risk of a backpayment. If during an audit the authorities find that the conditions are not or no longer met, the exemption will be canceled. As a consequence, the company will be obliged to pay Urssaf a sum equal to one and a half times the amount of contributions that were due initially.
As for the employee’s side, it is important to take well informed decisions as he is giving up rights. By opting out of the mandatory pension scheme, the employee could potentially lose valuable retirement benefits.
Seeking advice from experts
French payroll is one of the most complex systems. Our French payroll services include advice on all related topics, such as opting out of the mandatory pension scheme.
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