Popular Savings Plan (PEP): A long-term savings tool

The Popular Savings Plan (PEP) was created in France in 1990 to encourage long-term savings while offering attractive tax benefits. Although new PEP subscriptions were closed in 2003, existing PEPs continue to operate and benefit from their tax advantages. This article explores how the PEP works, its benefits, and how it can fit into a long-term savings strategy.

What is the Popular Savings Plan (PEP)?

The PEP is a long-term savings account that allowed savers to build capital while benefiting from an exemption from tax on the generated income, provided they respect a minimum holding period of eight years. The PEP could be funded up to a ceiling of €92,000 and the accumulated interests were exempt from income tax, but subject to social security contributions.

PEP Advantages

The PEP offers several advantages to savers:

• Tax exemption: After eight years of holding, gains made on a PEP are exempt from income tax, although they remain subject to social security contributions. For example, if you have accumulated €20,000 in interest over eight years, you will only pay social security contributions on this amount.
• Management flexibility: The PEP allowed investment in various mediums, including financial securities or life insurance contracts, providing flexibility to adjust savings according to market developments.
• Possibility of capital or annuity withdrawal: At the maturity of the PEP, the saver can choose to recover their capital in the form of a life annuity or capital, with an exemption from income tax in the case of a life annuity.

Example of PEP Usage

Let's assume a saver opens a PEP in 2000 with an initial payment of €50,000. After 15 years, the PEP has accumulated €25,000 in interest. In 2015, the saver decides to close the PEP and recover the entire capital. The €25,000 in interest is exempt from income tax, but the saver will have to pay social security contributions on this amount, approximately €4,300 (at a rate of 17.2%).

Laws Regulating the PEP

The PEP is governed by the General Tax Code, in particular articles 157 and 158, which detail the conditions for tax exemption and the operating procedures of the plan. Although new subscriptions to the PEP have not been available since 2003, existing PEPs continue to operate under the tax regime in place before that date.

Conclusion

The Popular Savings Plan (PEP) remains an interesting savings tool for those who hold one, offering significant tax advantages for long-term savings. While this product is no longer available for new subscriptions, PEP holders can continue to benefit from it and integrate it into their overall wealth management strategy. For those seeking current alternatives, the Equity Savings Plan (PEA) and life insurance remain viable options offering similar benefits.