What are the Pension Rights of Auto-Entrepreneurs?

Wednesday 01 September 2010

Auto-entrepreneurs pay a single lump sum ‘national insurance’ charge, calculated as a percentage of their turnover.

This distinguishes them from other types of business status, where there is a specific charge for each constituent part of the social security cover - invalidity/death, health, sickness benefit, family benefits, social charges, and pensions.

The actual percentage contribution paid by an auto-entrepreneur varies by type of business.

A 'service' based business pays at the rate of 21.3% of turnover, and a 'sales' based business 12% of turnover. Those in one of the professions libérales pay either 21.3% or 18.3% depending on the nature of their business activity.

As a result of this lump sum system, the level of the pension contributions and pension rights are not immediately apparent.

Accordingly, the French government have recently issued regulations that sets out the rules.

In summary, what they say is that pension rights will depend on the level of the turnover of the business and that a minimum level of turnover is required to earn a pension.

The minimum turnover per year differs by type of business occupation.

For those in sales it is €6,111; those in a service activity, €3,544; for professionals it is €2,685. This figure is arrived at after deduction of the standard cost allowance for each type of activity - either 71%, 50%, or 34%.

So, in reality, the minimum turnover figure required is much higher than the headline figures announced by the social security fund for the self-employed, the Régime Social des Indépendants (RSI)!

Those of you with some familiarity of all of this will recognise these cost allowances as those that apply for the regime de base for a micro-entreprise.

Broadly speaking, pension rights in France for the self-employed are based on points awarded for each quarter's earnings, and the value of that point. So in the following table, someone running a sales based business would need to have a turnover of €24,442 to earn four quarter points.

The following table shows the turnover needed to obtain one to four quarters' pension rights in a calendar year.

The amount of pension you will actually receive will depend on the number of quarters' you earn, although there are minor variations by type of scheme.

Some may argue that as auto-entrepreneurs pay social security contributions on their turnover, then the pension value should be without deduction of the cost allowance. However, this would place them in a far more advantageous position than other types of businesses, and there is already controversy enough about this new status!

This article was featured in our Newsletter dated 01/09/2010