Prime Minister Élisabeth Borne is set to announce the French government’s pension reform plans on Tuesday, proposals that are likely to continue to prompt controversy. President Emmanuel Macron insists the reforms are needed to salvage a system that is unsustainable in its current form. But many are not convinced.
“If we don’t enact these reforms, the current system is in danger,” Macron told TF1 in early December. Macron even used his traditional New Year’s Eve address to say the measures must be enacted to make sure France’s pension system is financially viable for “decades to come”.
The centerpiece of the legislation will be raising the retirement age from 62 to as late as 65 or face having monthly payouts curtailed – a proposal that both the political opposition and unions find particularly galling, and which has led to widespread protests and strikes.
The demonstrations brought much of Paris to a halt in the winter of 2019-2020 before reform plans were temporarily shelved when Covid struck France in earnest in the spring. One of France’s more moderate unions, the CFDT, sat the strikes out, but now even the CFDT is vowing to call on its members to strike to protest raising the retirement age.
Previous rounds of pension reform are already being implemented. The Touraine reform, voted in under Macron’s predecessor François Holland, gradually extends the amount of time people must pay into the system to 43 years (for those born in or after 1973) before they can retire on a full pension.
A byzantine system
Critics have often cast France’s pension system as byzantine or convoluted, in part because it consists of 42 different state-supported pension schemes. The entire pensions system cost the government just under 14 percent of GDP in 2021.
But some of the government’s own agencies refute Macron’s claims that the current system would be moribund without urgent action.
A September 2022 report by the Pensions Advisory Council (Conseil d’orientation des retraites), a state body, found the pensions system actually produced surpluses in 2021 (€900 million) and 2022 (€3.2 billion), although it did predict the system would run a deficit on average over the next quarter of a century. According to the council’s estimate, “between 2023 and 2027, the pension system’s finances will deteriorate significantly”, reaching a deficit of between 0.3 and 0.4 percent of GDP (or just over €10 billion a year) until 2032. But the council said it estimates a gradual return to breaking even, even without reforms, beginning in the mid-2030s.
A deficit of €10 billion to €12 billion per year is not necessarily excessive for a pension system whose total annual expenditure amounts to around €340 billion. “The results of this report do not support the claim that pensions spending is out of control,” the council wrote. The report also noted that pensions spending as a proportion of GDP is expected to remain stable, at around 14 percent of GDP, before rising to up to 14.7 percent by 2032.
The pensions report makes it clear that the current system is not necessarily in danger, said Michaël Zemmour, an economist and pensions expert at Paris 1 University.
“It has become a form of political discourse to exaggerate and dramatize the deficit issue, to claim the system urgently needs to be reformed, when in fact the deficit is rather moderate,” Zemmour said.
No doubt there will be something of a shortfall, he said, but not the kind of deficit that would require raising the retirement age.
Zemmour noted that a document France sent to the EU last summer outlines how Macron is planning to pay for proposed tax cuts with structural reforms to get the national deficit under 3 percent – as required of EU member states – by 2027. “It’s not about saving the pension system, it’s about financing tax cuts for businesses,” he said.
The only option – if you rule out all the others
Typically, there are three ways of reforming a pension system: raising the retirement age, reducing payouts or injecting new funding. Macron has already ruled out both cutting pension payments or spending more money on the system – so that leaves raising the retirement age.
“Yes, it’s the sole solution – but only when you’ve closed your mind to all the others,” Zemmour joked.
In a December 2 blog post, Zemmour suggested five ways to add €12 billion to the system by 2027, including ending certain exemptions to pension contributions and reversing proposed business tax cuts (which he said would save €8 billion annually starting in 2024).
“There are many other possibilities, like getting more older people into the labour force, which would add them to the tax base, or asking high earners to contribute more,” Zemmour said.
Macron has argued that France has neither the highest retirement age nor the longest required contribution period compared with its EU neighbors. And he has a point. On average, the French still retire earlier than in many neighboring countries. According to the Pensions Advisory Council, the average age at which French nationals begin tapping into their retirement funds was 62.6 for women and 62 for men in 2019. That same year, the average age in Italy for both sexes was 63, 64 in Germany and 66 in the Netherlands, with women on average retiring a few months later than men.
Ironically, raising the retirement age can lead to financial insecurity for people at the end of their careers, Zemmour said.
“When the retirement age goes up, a lot of people who are already out of work can’t find a job toward the end,” he said. “…So a lot more people will be out of work for longer in the run-up to their retirement. And that means a sharp increase in the number of people receiving welfare benefits, particularly disability benefits.”
“This will be the situation facing ordinary workers, not high-paid business executives,” Zemmour observed. “So there will be a longer period of pre-retirement economic insecurity for the over-60s who are out of work.”
This article was translated from the original in French.