PEA insurance: capitalization contract, redemptions and life annuity

A PEA insurance plan is a PEA (equity savings plan) opened with an insurer, in the form of a unit-linked capitalization contract. Gains remain in the contract until a withdrawal is made. After five years, withdrawn gains are exempt from income tax, but social security contributions remain due. The plan can also be converted into a life annuity: this is exempt from income tax, and a portion of its amount, determined by the age at the first payment, is subject to social security contributions.

This page describes how the plan works, withdrawals, and the annuity. It does not provide any social security contribution rates: the applicable rate should be verified with the current official source. It does not cover transfers, fees, the death of the account holder, leaving France, or bank-based PEA accounts.

What is a PEA insurance

Service-public.gouv.fr states: «The PEA insurance plan is opened with an insurer in the form of a capitalization contract.» The BOFiP (Official Bulletin of Public Finances) says the same thing about a plan opened with an insurance company. The contract is unit-linked. According to the information sheet, only cash contributions are allowed, and the funds are invested in securities eligible for the PEA.

According to service-public.gouv.fr, the return on a PEA (equity savings plan) is uncertain, as it depends on the stock market performance of the chosen investments, and the PEA does not offer a "capital preservation guarantee." The invested capital can decrease.

Buybacks: before and after 5 years

A withdrawal from a capitalisation contract is called a redemption. As long as there is no redemption, the gains are not taxable.

The net gain is the difference between the redemption value of the contract on the date of redemption and the amount of payments made since the opening of the plan (BOFiP, BOI-RPPM-RCM-40-50-40 § 270, which specifies the case of payments relating to previous redemptions).

Exceptions before age 5. Service-public.gouv.fr lists cases where a redemption before 5 years does not result in closure: business creation or takeover, dismissal, disability, or early retirement of the account holder or their spouse or civil partner, withdrawal of shares from companies in liquidation. The conditions for each case are not detailed on the page; the BOFiP (Official Bulletin of Public Finances) refers, for business creation or takeover, to Article L. 221-32 II of the French Monetary and Financial Code. Check the conditions applicable to your situation before making a redemption.

Social charges. Regardless of the redemption date, gains are subject to social security contributions, calculated by the financial institution. This page does not publish rates: the rate applicable to a PEA insurance policy can be verified on your insurer's statement and on the most up-to-date official websites.

The life annuity

The plan can be closed by the payment of a lump sum or a life annuity. When the plan is terminated after 5 years with a life annuity, it is exempt from income tax (BOFiP). It remains subject to social security contributions. The impots.gouv.fr page "Assurance-vie and the PEA" also classifies the payout as a life annuity after 5 years as tax-exempt. If a survivor's pension is paid to the surviving spouse, the BOFiP extends the exemption to them.

According to service-public.gouv.fr, the portion of the annuity subject to social security contributions depends on the age at the date of the first payment:

This scale is available on service-public.gouv.fr. The BOFiP (Official Bulletin of Public Finances) only states that the annuity "remains subject to social security contributions." The two texts should be read together; confirm the scale before deciding on an annuity.

PEA insurance: numerical example (fictitious profile)

Situation. Marc, 66, has held a PEA (equity savings plan) for over 5 years. He is considering converting his plan into a lifetime annuity. The contract would offer him an annuity of €6,000 per year: this amount is an assumption, not a calculation. To compare the different income brackets, the same annuity of €6,000 is assumed at each age (as a hypothesis).

Issue. What portion of this annuity is subject to social security contributions, depending on the age at which the annuity begins?

Strategy. The annuity is calculated according to the scale found on service-public.gouv.fr. No amount of deductions is calculated: the applicable rate is not established by the sources consulted.

Result.

For Marc, €2,400 of the €6,000 annuity is subject to social security contributions; the annuity itself is not subject to income tax. Assuming the same annuity amount, the tax brackets show €2,400 at age 66 and €1,800 at age 72, a difference of €600. This figure only describes a rule for determining the taxable base; it does not recommend any specific age. It says nothing about the annuity amount a contract would offer or which option is most suitable: a unit-linked capitalization contract carries a risk of capital loss. The profile is hypothetical.

PEA insurance: what changes depending on your case

• The date of your first payment : it sets the opening date and the starting point of the 5 years.
• Your age at the time of the first annuity payment : it determines the fraction in question.
• Reasons for a buyout before 5 years : business creation or takeover, dismissal, disability, early retirement, liquidation of a company.
• Your residency status The PEA (equity savings plan) requires tax residency in France. Relocating from France is not handled on this page.
• The presence of a spouse : a reversionary annuity extends the exemption to the surviving spouse.

The rule depends on your situation. No results are guaranteed.