The redemption of quarters is a process that allows you to validate periods for which you have not been able to contribute. In this way, you can pay voluntary contributions in order to integrate these missing times in the calculation of your retirement when you leave. However, it happens, in some cases, that this procedure is not sufficiently interesting and that it does not offer you specific advantages, especially in the context of the ratio between its cost and its benefits. In a recent file, the Pensions Orientation Council detailed the profitability of the redemption of quarters. What are the cases where it is not useful?
As you approach retirement, it is not uncommon to worry about calculating your pension, as well as obtaining the full rate, subject to a required period of insurance. To reach it, a certain number of quarters are necessary and, when they run out, the prospect of buying back quarters looks attractive. You can therefore buy back terms of higher education, terms of internships in a company or even terms for incomplete years.
To request this redemption of quarters, you must be at least 20 years old and not have exceeded the age of 67. It is therefore better to anticipate this prospect in advance in order to organize yourself upstream. It is possible to buy back a maximum of 12 quarters, according to the standards in force. Nevertheless, this redemption is sometimes less interesting than expected, as shown by the recent file created by the Pensions Orientation Council, and reported by our colleagues at Capital, on the redemption of quarters. Indeed, faced with the complexity of the system and the current pension reform, the purchase remains, in certain circumstances, more than dispensable.
In its file on the redemptions of quarters, the Council of orientation of the pensions evoked their profitability. He thus compared all the contributions paid during his career with the pension received. In this calculation, it is the cost of the purchase, which has been analyzed in order to know if this option is sufficiently relevant for the future retiree. Therefore, between an executive and a non-executive, the cost of redemption remains fairly close, despite its fluctuation according to gross annual income.
The Cor report thus explains that “the rate of effort for the redemption of a quarter therefore remains much higher for the non-executive than for the high-income executive”. He continues by specifying that “this reserves in practice this type of redemption for the wealthiest in terms of income or heritage”.
In order to know what was the interest of this redemption of quarters, the Pensions Orientation Council evaluated the internal rate of return (IRR) with redemption of quarter and this same rate without redemption. It ruled that, for example, an executive wishing to retire two quarters before the full rate will be able to benefit from a better return by buying back two quarters (0.92%) rather than suffering a discount.
The non-executive suffers, meanwhile, an opposite situation with identical profitability, i.e. 1.23%, regardless of whether or not he buys back two quarters. The interest of the redemption is therefore almost insignificant. The difference widens rather at the level of the supplementary pension with a smaller gain for the non-executive. The redemption of quarters, under these conditions, must therefore be greater for the operation to become profitable, starting from four quarters for a non-executive and two quarters for an executive.
