French Socialist Government Underwhelms with Pension Reforms

Making the French work a little longer doesn’t solve the pension system’s problems in the long term.

The pension reforms announced by the French prime minister, Jean-Marc Ayrault, on Tuesday do little to improve the retirement system’s solvability in the long term.

While the pension age remains at 62 — despite President François Hollande’s campaign promise to bring it down to sixty — the number of years of work required to collect a pension is set to rise by one and half between 2020 and 2035.

Starting next year, companies and workers will also be required to pay more into the system, which faces a €14 billion shortfall this year.

The pension fund’s deficit is projected to increase by €6 billion by 2020.

Nobody’s happy

Although the higher payroll contributions should be offset by unspecified reductions in other taxes, business groups have been quick to criticize the absence of structural reform.

“In truth, it is a non-reform,” Pierre Gattaz, the new head of the country’s largest employers’ confederation, told the Financial Times.

Labor unions were dismayed by the requirement to work longer and announced a strike for next month.

Support for reforms

Although French pensions are lower on average than in the rest of Europe, they are paid almost entirely by the state.

Public spending on pensions accounts for 14.4 percent of annual French economic output. The EU average is 12.9 percent.

Surveys suggest a majority would support raising the retirement age and bringing public-sector pensions in line with those in the private sector.

Many civil servants, like bus and metro workers, are able to retire in their early fifties, a source of grievance in a country where one in five people are employed by the government.

Powerful unions

The trouble for Hollande is that he has little political leeway in this area. Members of his Socialist Party would likely block reforms, given their reliance on support from public-sector workers and trade unions.

When the European Commission urged France to raise the pension age, Hollande responded that the body could not “dictate” policy.

“It’s up to us and us alone to decide what path to take to obtain the objective,” he said at the time.

Time bomb

Demographics are not on his side, The Wall Street Journal reports.

France had five people of working age for every one retiree in 1950. Today it has 1.4 and the ratio is expected to fall to 1.2 by the middle of this century.

“France’s somewhat higher birth rate might spare it from the worst of the pension crisis that threatens Germany and other European countries a few decades hence,” according to the American newspaper. “But given France’s consistent lack of economic growth, relatively favorable demographics can postpone the pension bomb’s detonation. It won’t defuse the bomb.”