Top-hat pensions: what’s changing in 2019

The recurring issue of pensions is not confined to basic and supplementary pension schemes. Other forms of “supplementary” retirement provision are also under scrutiny, due to the need to adapt national legislation or for political intervention to regulate them.

Top-hat pension schemes are no exception to the reform trend.

In this interview, Abdelkader BERRAMDANE, Partner in charge of social regulations at Palmer Consulting, answers 5 questions about top-hat pensions:

• What is a top-hat pension?
• Why will the top-hat pension scheme change?
• What are the main provisions designed to facilitate this mobility?
• Limited rights, in what way?
• What are the new social obligations for top-hat pensions?

What is a top-hat pension?

A top-up pension is a scheme in addition to the compulsory basic pension scheme managed by the French social security system, and the supplementary Agirc-Arrco scheme managed by the social partners.

In fact, there are two different types of top-hat pension. The additional or additive pension, under which the beneficiary receives a supplementary pension regardless of the level of statutory pensions.

Defined-benefit pension schemes provide beneficiaries with an overall level of retirement income that takes into account the level of pensions provided by compulsory schemes.

The top-hat pension scheme is set to change. But why?

Without going into technical considerations of the current legislation relating to these pensions, let us point out that the Pacte law, which was the subject of a constitutional appeal at the time of this registration, provides for the transposition, by ordinance, of a 2014 European directive improving the acquisition and preservation of supplementary pension rights.

The aim of this measure is to facilitate intra-European worker mobility by introducing portability of top-hat pension rights.

What are the main provisions designed to facilitate this mobility?

At present, the payment of top-hat pension rights is conditional on the beneficiary’s presence within the company at the time of liquidation of said rights. This condition may be perceived as an obstacle to the beneficiary’s departure, and consequently to his or her professional mobility.

The definitive acquisition of rights will be limited to the presence of beneficiaries for a maximum period of 3 years.

The forthcoming ordinance will also set out the transitional provisions for existing schemes providing for entitlement to benefits on completion of the beneficiary’s career.

Limited rights, in what way?

The draft ordinance introduces a double limit. Firstly, the funding of top-hat pensions is limited to 3% of remuneration for the year in question for all employees. Secondly, benefits may not exceed 30% of remuneration paid by all employers.

The text also stipulates that the conditions for achieving performance targets must be effective.

What are the new social obligations for top-hat pensions?

An employer’s contribution of 29.7% will be levied on the sums used to finance the scheme.

Each year, the employer must inform the beneficiary of the rights acquired, and make an annual declaration to Urssaf of the beneficiaries and the additional rights vested in them.

To find out more about Palmer Consulting’s Human Resources, HRIS & Social Strategy Division, click here.