Pension fund reserves
Executive summary
2022 Annual Public Report
2
The Court of Auditors examined the contribution of the compulsory pension system
reserves to the resilience of the French pension system during the Covid-19 crisis. The use
of part-time working and the granting of payment delays had repercussions on their
resources. The crisis also led financial markets to wide fluctuations. These facts resulted in
different uses of the reserves, while illustrating their usefulness.
Reserves of unequal importance with different objectives
Defined as assets that are not directly required for the administrative management of
the pensions, reserves correspond to assets (equities, bonds, real estate, etc.) held by the
funds managing one or more mandatory pension schemes.
In France, the role of pension funds
stricto sensu
, in which reserves are the counterpart
of individual commitments to members, is limited: their net book value was €36.2bn at the
end of 2020. Most of the reserves are held by pay-as-you-
go schemes (€124.9bn), primarily
by supplementary schemes, including Agirc-
Arrco (€52.9bn).
Breakdown of reserves between the different types of mandatory plans at the end of
2020 (in net book value)
Source: Court of Accounts based on data provided by the schemes
The Court of Auditors observed that pay-as-you-go schemes may accumulate reserves
most often without defining their goal, and sometimes without integrating them into the
general management of the scheme.
Due to the diversity of situations, the relative size of reserves varies greatly. At the end
of 2020, they represented between 7.7 months of benefits for Agirc-Arcco and 144 months,
or twelve years of benefits, for the
notaries’
fund.
The contrasting effects of the health crisis on pension plan reserves
The Covid-19 crisis resulted in a limited decrease in the overall amount of reserves of
pay-as-you-
go pension schemes, from €130.4bn at the end of 2019 to €124.9bn at the end
of 2020. But, the effects have been heterogeneous depending on the schemes.
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For the Agirc-Arrco, the massive deployment of part-time working in companies led to
a technical deficit of €5.3 billion in 2020 and required €4.1 billion of reserves to be drawn on.
To comply with the prudential regulations under which the reserves must be the equivalent
of six months of benefits over a 15-year period, pensions were under-indexed in 2021 by 0.5
points compared to inflation. For its part, the supplementary scheme for the self-employed
has taken €1 billion from
its reserves to fund exceptional support.
When the crisis occurred, the regulatory framework for the investment of assets was
uncertain. Its overhaul, which has become essential, should pursue three objectives:
improving the transparency of reserve management, strengthening the consistency of their
management with the medium- to long-term financial projections of the schemes, and building
a capacity for expertise outside the pension funds in order to assess the long-term solvency
of the schemes, the performance of their management and the associated risks.
The crisis led to review the allocation of the reserves of the
Fonds de réserve des
retraites
(FRR
–
National Pension Reserve Fund). Almost all of its assets are now committed
to the Cades (
Caisse d’Amortissement de la Dette Sociale
- Social Security Debt Repayment
Fund) in order to finance the deficits of the different branches of the social security system
and no longer, as was the initial objective, to contribute to fund retirement pensions in the
future.
In this context, the FRR could be closed and any surplus, corresponding to the
difference between its assets and liabilities, could be transferred to the Cades. An alternative
would be to redefine its nature and missions, for example by entrusting it with the
management of cyclical precautionary reserves for the benefit of the CNAV (
Caisse Nationale
d’Assurance Vieillesse
- National Old Age Insurance Fund), or even for all branches of the
social security system, provided that the balance of the general pensions scheme would be
restored.
Recommendations
The Court therefore makes the following recommendations:
1.
Harmonize the accounting definition of assets accepted as reserves, financial income
and management fees under the aegis of the
Autorité des normes comptables
(French
Accounting Standards Authority), in order to allow the monitoring and comparability of
financial data
(Social Security Directorate, Budget directorate, General Directorate of the
Treasury)
;
2.
Update the regulatory framework for the management of pension fund reserves, seeking
to align their financial management with their medium- and long-term projections
(Social
security Directorate, Budget Directorate, General Directorate of the Treasury)
;
3.
Build up a capacity for appraisal, within the supervisory authorities or an independent
body, to assess the long-term solvency of schemes, the consistency of their financial
management and the associated risks, and to establish a comparison of the results of
their management
(Social security Directorate, Budget Directorate, General Directorate
of the Treasury)
;
4.
Transfer the residual assets of the
Fonds de réserve pour les retraites
to the
Caisse
d’amortissement de la dette sociale
(Social Debt Repayment Fund), or redefine its nature
and missions
(Social security Directorate, Budget Directorate, General Directorate of the
Treasury)
.