In answer to the question of where do you put your money for maximum tax efficiency, an assurance vie is certainly the best place to put it. The French have continued to favour this investment over the years. According to the French Insurance Federation (FFA), in 2019 the premiums paid into assurance vies increased by 3.5% in 2018, to a total of €144.6 billion. I subscribe to a French financial magazine and every year they do an article on the best assurance vies in the market. This gives me an interesting insight into which products are recommended for the typical French investor.
What is interesting to note is that it is very rare for bank assurance vies to appear in this list. Banks have several assurance vie products under different names with different offers and it can be hard for the consumer to understand and compare performance and costs. Every member of my household, including my children, has an assurance vie, because even after social charges on the part in Euro funds, they are more likely to outperform any cash savings accounts. For example, the Livret A (the preferred savings account of the French) and the LDDS now only pay 0.5% interest per year and any other savings account offered by banks only generally offer between 0.2-0.3% interest which is not exempt from tax and social charges.
The French tend to favour investments in Eurofunds, believing them to be a safe option. Whilst this may be true if the investment horizon is less than three years, in the longer term inflation has a negative effect. The days of glory of the Eurofunds was around 2013-2014 when rates reached 2.5%. In 2019 the average rate on Eurofunds was 1.5% compared with 1.8% (net of fees) in 2018. However when compared with inflation, which was 1.8% in 2018 and 1.1% in 2019, there wasn’t much ‘real’ growth. Social charges are taken at source on such investments which further impacts performance. If your investment horizon is over three years and closer to between five and eight years then you should be investing at least partly in equities to produce a positive return above inflation. If it’s security you are looking for, the more diversified your assets, both in terms of asset classes and geographical location, the better your portfolio will be to weather market fluctuations.
The advantage with bank assurance vies is that you can start with smaller amounts to invest and build up with regular monthly amounts. However as a financial adviser with a high level of French, even I find it difficult to understand what exactly is in these assurance vies and where the underlying investments are held. Usually you are given the option of eurofunds and euro equities. It is rarely possible to hold assets in a different currency. We work with assurance vie providers who can allow you to hold assets in sterling and dollars as well as euros, which would allow you to leave this money to beneficiaries living in the UK or the US and avoid transferring the money into euros at today’s exchange rate. If you wanted to invest in euros but are holding sterling, over time it can be switched into euro funds at the appropriate time and with advice from your financial adviser.
It is not easy to change assurance vies. The French government changed the rules at the beginning of last year allowing people to change contracts but only with the same insurer. However this depends on whether the insurer will allow you to change contracts and whether they have anything better to offer.
If you are in your 40s, 50s or 60s and your investment horizon is longer than eight years, and if you find that your assurance vie is not performing as it should, or you no longer get the proper advice/service from your financial adviser/assurance vie provider, you could consider encashing the policy and finding a better investment. Professional guidance from an authorised financial adviser is essential to determine whether this this option is appropriate for your circumstances.
If however you are over 70 and set up the assurance vie before 70, or you set up the assurance vie over eight years ago and are benefitting from the income tax abatements of €4600 per person (€9200) per couple, it may not be in your interest to change assurance vie providers. There are still many benefits of setting up a small assurance vie after 70 to benefit from other abatements, but that will depend on your situation and you should discuss options with your financial adviser.
I would always advise speaking to a financial adviser before going into any investment whether French or foreign. You need to be aware of the past performance of the investment (although this is no promise of future returns), the reputation of the investment company and the costs and how this may affect investment performance. For more information about assurance vies in general please see our guide but if you are considering this type of investment please do contact your local financial adviser.