The Social Debt Redemption Fund (CADES) was created in 1996 during France’s social security reform. Through this reform, French debt that had been created in the context of « social » activities was isolated from the rest of the public debt. CADES’s mission is to take over and pay off social security debt. Since its creation, it has amortized €110.2 billion in social debt.
In this article, we will look at how this organization works before examining its financing strategy on the financial markets.
« Repaying debt – Securing the future »
How does the debt takeover process work?
The purpose of CADES is to take over and amortize social security debt. This takeover is carried out within a legislative framework. Each year, the government, in its Social Security Financing Bill, indicates the amount of debt it wishes to transfer to CADES. This amount is then validated by Parliament. For example, in 2016, CADES recovered €23.6 billion in debt representing the deficits of the Old Age Solidarity Fund and the old age branch of the general social security system, as well as a portion of the deficits of the health and family branches.
Here is the debt recovery process:
Source: CADES
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What resources?
CADES has several resources at its disposal to best fulfill its mission. Firstly, the CRDS (contribution to the repayment of social debt), created specifically for this organization when it was established, which brought in €7 billion in 2016. This tax, set at a rate of 0.50%, applies to all earned and replacement income, investment income, and capital gains. The second resource comes from the CSG (general social contribution), of which CADES receives 0.60% (i.e., €7 billion). Finally, it receives an annual payment of €2.1 billion from the Pension Reserve Fund.
Once received, the resources are used to pay interest and amortization. The graph below shows the distribution between the two possible uses of the resources:
Source: CADES
The resources received by CADES each year are not sufficient to cover all of its financing needs.
In the next insight, we will see how CADES will meet its financing needs on the financial markets.
Notes:
[1] All information is taken from the CADES website: http://www.cades.fr/index.php?lang=fr, http://www.cades.fr/pdf/agenda/fr/Conf_presse_Paris2016.pdf
