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French Pension Reform: "No Winners, No Losers"... But No One Won Over?

BLOG - 7 January 2020

As Tuesday 7 January marks in France the 35th day since the start of the nationwide protests and transport strikes against the government’s pension reform, Emmanuel Macron is to resume negotiations with trade unions. On Wednesday 11 December, French Prime Minister Édouard Philippe had presented the general architecture of the long-awaited major pension reform announced by the executive. A speech that lasted nearly an hour and which, contrary to what some people feared, provided a great deal of information on the transformation of the pension system. It was however not enough to convince the critics, the reality of the reform clashing with the desire to please everyone. This inability was in fact foreseeable.

Do not miss one’s chance

The executive had two momentums to take up the subject of the pensions head-on, and with the support - or, at least, the non-animosity - of the population. But the aftermath of the presidential election in 2017, on the one hand, and the report delivered by Jean-Paul Delevoye this summer, on the other hand, were two missed opportunities for the government to start the work. The government's delay in taking action has put a strain on an already complicated schedule. It also follows a major consultation, a process that in itself often turns out to be a double-edged sword (beneficial if it leads to a reform, an instrument of populism otherwise).

It was thus frustrating and risky to see the long period of consultation accomplished by the High Commissioner for more than a year entirely called into question a few weeks later by a short sentence said by Emmanuel Macron (stating that he preferred "an agreement on the duration of contributions rather than on age" while at the G7 in Biarritz). These few words wiped out all the benefits of the negotiations that had taken place so far.

Do not mistake speed for precipitation

Besides the "procedural flaws" of this project, the very substance of the reform raises questions.

Besides the "procedural flaws" of this project, the very substance of the reform raises questions.

First of all, in terms of its foundations. The systemic reform should, according to the President, have been based on the foundations of the current system once the later became financially sustainable. However, the latest projections of the Pension Policy Council put off until 2040 (or later) the slightest hope of a financial equilibrium.

Secondly, on its content. Did we not, from the outset, place too many hopes in this reform? Previous experiences have constantly demonstrated the passionate nature of the debate on pensions. How can we then ensure that a transformation that has all the characteristics of an experiment (the only comparable example being Sweden, which took 11 years to change its system) does not create turmoil and anxiety within the society? This observation is certainly easier to make afterwards, but it had already been drawn up by the Institut Montaigne in 2016. The aim of a systemic reform is honorable, but it cannot be utopian. Consequently, having the objectives of both financial equilibrium and the alignment of schemes in the form of a universal scheme (effectively abolishing special schemes), all with a constant budget envelope (14% of French GDP devoted to pension expenditure, compared with 10% for EU countries) and, above all, while taking into account demographic changes, seemed - and still seems - to be an unsolvable equation.

"No winners, no losers"... and therefore few convinced

In trying to find the optimum solution, and in view of the (multiple) reactions of the social partners following Wednesday's announcements, Édouard Philippe did not ultimately gather the support of the crowds - to put it mildly. But two points of Édouard Philippe's speech this Wednesday should be acknowledged. The first is that the reform's guideline is maintained: a new generational pact, embodied by a universal system, with the same rules applying to MPs and farmers, civil servants, nurses, etc.

The second is that the many flaws of the current system (injustice, illegibility, unsuitability for new careers) have also been pointed out, with dexterity, by the Prime Minister. But beyond these two good points, the mix between systemic reform and parametric efforts - the primary source of fears related to this project - has tarnished the announcements and strengthened the lines of disagreement between the executive and several trade unions.

The mix between systemic reform and parametric efforts - the primary source of fears related to this project - has tarnished the announcements.

The debate on age is an illustration of miscommunication

As shown in the survey conducted by Elabe for Les Echos, Institut Montaigne and Radio Classique, 57% of French people are aware that they will have to work later to ensure the sustainability of the pension system. The French are not lagging behind: they spend, on average, five years longer in retirement than in other OECD countries, and a 10-point gap exists between the employment rate of 55-64 years old in France compared to our neighbouring countries (52.7% in France versus 61.8% in OECD countries). There is thus considerable latitude, and the raising of the retirement age is justified, if only for demographic reasons (there were 4 working people for every pensioner in 1960, there are 1.7 working people for every pensioner today, and there will be 1.2 for every pensioner in 2050). Pushing back the retirement age is never easy. But it would have been cleverer, and certainly more logical, to tackle the issue head on, as the demographic argument proves, before launching the work of this systemic reform.

This is not the solution chosen, and the consequences are now being felt. Édouard Philippe's announcement of a steady retirement age of 64 years by 2027, with a system of discounts and premiums, is the one that is undeniably attracting attention to the point of calling into question the entire reform, despite objectives that few can criticise: legibility and social justice.

 

 

Copyright : Thomas SAMSON / POOL / AFP

 

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