buying back quarters remains a costly investment, News/Analysis Savings
With the current debates around the pension reform project, the alternative of buying back quarters of contributions remains unavoidable for all those who are considering an early departure but are wondering about the solutions to increase their basic retirement pension when does not have a sufficient period of insurance. A quarterly buy-back is however a costly operation at the start despite a tax saving the year of the buy-back (see below) and remains a bet on life since the profitability of such an investment will depend on its life expectancy after the retreat.
Redeeming quarters does not allow you to leave before the legal retirement age, which should be lowered to 64 years (except in special situations) according to the government’s reform project, but aims to limit or cancel the level of reduction suffered on your pension when you are missing quarters of contributions. Currently, 172 quarters, or 43 years, are for example required for the generation after 1973 in order to benefit from a full pension.
12 trimesters maximum
First of all, only certain situations make it possible to redeem quarters: this is the retirement payment mechanism (VPLR) for years of higher education or calendar years worked but validated by less than four quarters. The years worked abroad in a non-contracted country also allow you to benefit from this buy-back option. In all cases, redemptions are limited to a maximum of 12 quarters.
Two possible options
The redemption amount for each quarter is set according to the insured’s remuneration and age. Two options are available: the redemption of quarters can be done “under the rate” or “under the rate and duration of insurance”.
- With the option “in respect of the rate” alone, the least expensive, the redeemed quarters only make it possible to reduce the discount rate which applies to the average annual income to calculate the retirement pension.
- With the option “in respect of the rate and duration of insurance”, the quarters bought back make it possible to improve both the discount rate and the ratio of duration of insurance to duration of insurance required. This ratio in fact reduces the pension when the total number of quarters required for a full pension is not available.
Today, to benefit from a full pension, 167 or 168 quarters are indeed required for people close to the legal retirement age (born between 1960 and 1963) while 172 are imposed for insured persons born from 1973. But the current reform plans to extend this required duration from 1 to 3 quarters for people born between 1962 and 1972 (between 168 and 171 quarters today).
New grid 2023
The new grid for the redemption of quarters of pension contributions published for 2023 by the National Old Age Insurance Fund (Cnav), has not changed in terms of the cost of the quarters according to age (from 20 to 66 years old). but the salary levels determining this cost have been increased by 6 to 7% compared to 2022. Because of course, the older you get, the more expensive it is to buy back quarters. This cost also depends on his salary level (professional income for the last 12 months of activity) according to three brackets: less than €32,994, between €32,994 and €43,992 and more than €43,992. This last amount corresponds to the annual social security ceiling for the year 2023.
This scale applies to insured persons aged 20 to 66. From the age of 67 and over, the amount of the redemption contributions is determined on the basis of the amount provided for insured persons aged 62 and reduced by 2.5% per completed year beyond this age (62 years), without time limit.
As you will have understood by seeing this scale, buying back quarters is expensive and not necessarily interesting, especially since certain parameters could change with the current reform. As Valérie Batigne, president of Sapiendo Retraite, indicated in a recent forum, it is better to wait until you approach retirement age and call on a specialist firm to check the relevance of buying back quarters.
A significant tax advantage is still associated with redemptions of quarters since they are fully deductible from gross taxable income in the year of redemption. This benefit will therefore be all the more attractive the higher your marginal tax rate.
Example in numbers
In the example of a 59-year-old person with annual income of €30,000 who would miss 6 quarters, buying back 4 will cost him €12,880 with the option at the rate alone and €19,088 for the rate and duration insurance. According to our calculations, in the first case where you have to invest €12,880, your retirement pension will be improved by only €60 per month, going from around €1,115 per month to €1,175 per month. This amounts to saying that it will take many years to recoup this investment (nearly 18 years at first sight).
By taking into account the tax reduction, the calculation is still more favorable since the deduction from the income of the amount of the redeemed quarters will cancel the tax (a little more than 2,000 €) of this person the year of the redemption. The period before amortizing this investment would thus be closer to 15 years after retirement, ie from approximately age 78.
You can perform a simulation of the cost of buying back your quarters on the Retirement Insurance website from your personal space. You have the option of making your payment by cash payment or payment in installments over 1, 3 or 5 years depending on the number of quarters you wish to validate.