With the French listing preparing for retirement as one of their major preoccupations, research by Aviva Vie provides real answers for savers hesitating between two very different paths: taking out a PERP or investing in tax-exempt buy-to-let property.
- Research by Aviva Vie into preparation for retirement
With the French listing preparing for retirement as one of their major preoccupations, research by Aviva Vie provides real answers for savers hesitating between two very different paths: taking out a PERP or investing in tax-exempt buy-to-let property.
This research enables a profile to be created of the "ideal" saver who already owns his own home and is the holder of a life insurance policy and is now going to choose between the two options.
Although they share several aspects in common (being tax deductible, favouring high TMIs (marginal tax tranches), providing long-term income with revaluation, taxing of additional income on retirement), these two options also differ in many aspects relating to their set-up, wealth tax or the transfer arrangements in the case of the death of the investor.
Property prices, a key factor
The greatest difference lies in the impact of the tax savings on the profitability of the investment. Aviva Vie's research shows that the main factor affecting the profitability of a "Borloo populaire" investment is changes in property prices in the 15 years after the deal and the impact of this on the credit lever effect. If we take the example of a saver whose marginal tax tranche would be 30% and who has no other income from property1, revaluation of the property by at least 2.5% per annum is the only way of achieving a rate of return close to that of a PERP, ie 4.42% compared to 4.53%. If property prices stagnate, the return on this saver's "Borloo" investment would be negative as the tax savings would be entirely absorbed by the gap between the rate of return and the rate of financing.
Taking these comparative factors into account, the ideal profile of the investor in tax-exempt buy-to-let property ("De Robien recentré" or "Borloo populaire") would be a taxpayer with a high marginal tax tranche in the long term and a regular income, looking for an additional income for extra expenses. He decides to bank on property prices rising in the long term and accepts the risk of an investment with a lever effect. He has to accept the drawbacks inherent in investing in property, such as the lack of income during tenants' holidays or while building works are being carried out.
On the other hand, the profile of the saver who opts to prepare for his retirement with a PERP is a taxpayer with a high marginal tax tranche and a regular or fluctuating income. His main objective is to prepare for his retirement by obtaining an additional income for essential expenses, with transfer as a secondary objective. He therefore accepts that his savings will be locked away until his retirement and must be used to purchase an annuity, in order to be sure to cover a shortfall of income.
The saver will have to base his choice on all these parameters. This choice is often complicated and he will need the guidance of a professional adviser.
All this is in keeping with the Aviva Good Advice strategy: a true policy of guiding customers in the long term. This good advice strategy involves helping all customers to determine the best asset allocation based on their situation and to ensure that the beneficiary clause, a fundamental aspect of life insurance, is correctly defined. This systematic twofold analysis ensures that the customer is offered an asset allocation appropriate to his or her objectives and investor profile.
-ends-
1 Hypotheses applying in this example:
- Borloo acquisition: €178,933 including 2.5% acquisition costs
- Gross Rent: 3.7% with 1% revaluation per annum
- Insurance and rental expenses: 12%
- Property tax: one month's rent
- 15-year bullet loan: €178,933 at a fixed rate of 4.70%
- Revaluation of life insurance: 0%
- PERP: investment of €3,000 for 15 years with 0% return.
Press contacts:
Aviva Vie
David Chenu
Telephone: 01 76 62 67 92
E-mail: david_chenu@aviva.fr
HDL Communication
Cyril Chassaing
Telephone: 01 58 65 00 77
E-mail: cchassaing@hdlcom.com
Notes to editors:
About Aviva
Aviva is the top life and pensions insurer in Europe and occupies a strong position in other markets throughout the world. Aviva is involved in three main areas, life assurance and long-term savings, fund management and general insurance. As at 31 December 2006, Aviva achieved a turnover of €61.9 billion and its assets under management amounted to €543 billion, making it the 5th largest insurer worldwide based on gross premiums.
With more than 150 years' experience in France, Aviva is among the top ten players in the insurance market. Aviva France is distinguished by a balanced multidistribution model which has proved itself: 875 general agents, 1,800 agency staff, 400 life advisers, more than 1,000 brokers, partners (Union Financière de France and Médéric). Aviva France's partners also include AFER, the leading association of savers in France, and the Crédit du Nord Group. Specialising in unit-linked products, Aviva is well-known for the performance of its long-term funds and its strong commitment to its customers through its Good advice approach. Aviva has more than 3,200 employees. As at 31 December 2006, Aviva France recorded a consolidated turnover of €6.4 billion, a consolidated operating profit of €689 million (based on intrinsic value - EEV/IFRS norms) and managed assets worth €72.9 billion.