The Assurance Vie is the most popular long term savings product in France offering both a choice of investment funds, tax and inheritance advantages.
There are two types, those offered in France by French companies and normally only in Euros and those ore recently offshore in places such as Luxembourg and Dublin. The latter more often than not offer a choice of currency and a wider range of investment.
There is one fund that traditionally has been popular in the past being based on deposit rate and bond yields. This is known as the ‘fonds en euros’ or ‘guaranteed fund in some cases. Currently it is also the only fund where CSG or ‘social charges’ are taken at source. However, as we are all aware, interest and bond yields have over the past few years reduced to almost zero. Indeed we had heady days of 5% in 2007 and more recently rates have been less than 2% and expected to fall further.
In the past a guaranteed rate would be declared at the beginning of the year and a bonus paid at the end of the year depending upon performance. However more and more fund managers have been placing funds into government bonds in order to meet their obligations and some companies have actually withdrawn the guaranteed minimum rate so in the future these funds could produce a negative return. Companies have actually been using their reserves to prop up the funds and maintain stability.
However there has been further news:
There are new reporting requirements on life assurers from the beginning of this year in which they are obliged to provide the state details of all policies with values above €7,500. This is allegedly for anti-money laundering purposes.
Insurers have been urged to lower the returns on these funds and as they haven’t gone far enough the government have passed an amendment to Article 21A of the “SAPIN
“law 2”. This has passed almost unnoticed in the media being presented just before the summer holidays. The ‘Constitutional Council’ will decide shortly whether this comes into effect.
The assumption is that it will be approved and the ‘Financial Stability Board’ will have the power to suspend, delay or limit temporarily for all or part of the portfolio the ability to make withdrawals or switch funds and certainly the ‘fond en euros’ will come under the spotlight in this area. This maybe to ensure the financial stability of insurers going forward and most Assurance Vie providers offer a guaranteed under European legislation for the first €70,000 of any Assurance Vie policy.
What to Do??
Certainly for our clients we have been systematically moving their funds out of the ‘fonds en euros’ and finding a similarly risk weighted fund and funds appropriate to their attitude to investment risk. Certainly taking funds out of an Assurance Vie may create a tax charge so this would likely be inadvisable.
Companies who offer ‘Assurance Vie’ policies outside of France don’t appear to be affected by this new French legislation and also have multi currency options and a much broader choice of funds as well as an ability to alter tax jurisdictions with most European countries rather than having to close the investment. This type of policy still remains an attractive investment with huge tax and inheritance advantages.
Written by Jennie Poate of Beacon Global Wealth Management.
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