Emmanuel Macron is moving forward with pension reform, and he’s right to.
Macron’s promise to reform pensions was one of the reasons the Atlantic Sentinel endorsed him for a second term. He has asked his government for a bill by Christmas, so the changes could go into effect next year.
Why change is needed
The official French retirement age, 62, is low by European standards. So is the average actual retirement age of 63.
France spends a larger share of its national income on pensions than other European countries: 15 percent. The average in the EU is 13 percent. Germany and the Netherlands spend 12 percent.
The Global Pension Index of Mercer, a consulting firm, and the CFA Institute, an educational nonprofit for chartered financial analysts, gives the French system low marks on long-term sustainability. They recommend raising the retirement age and increasing the level of contributions.
The current system is also inequitable. Government workers are able to retire in their fifties while mothers who interrupt their careers to raise children often have to work into their mid- to late-sixties to make up for the years they did not pay into a pension scheme.
France has three types of pensions
Julien Hoez of The French Dispatch explains the French pension system has three tiers:
- The state pension, similar to Social Security in the United States. It is financed by payroll taxes and pays 50 percent of a retiree’s income from their 25 highest-earning years or a maximum of €41,000 per year.
- Mandatory occupational pensions, which are managed by employers and trade unions, similar to Germany and the Netherlands. These raise pensions from 50 to between 70 and 80 percent of a retiree’s former salary.
- Voluntary private insurance.
What Macron wants to change
The president would raise the retirement age from 62 to 65 for all pension plans.
The remaining changes are in occupational pensions. There are 42, ten for the state railway alone. Public-sector pension plans tend to allow earlier retirement, as a result of which they are either loss-making or projected to become insolvent.
Macron would merge the 42 plans into one system. Workers would accrue “points” matching their monthly pension contributions, which are added up when they retire to calculate how much pension they will get.
Contributions would be 28 percent of salaries, with workers paying 17 percent and employers 9 percent. Earnings over €10,000 per month would be taxed at 2.3 percent without conferring points.
There would be points for periods of maternity and paternity leave.
The goals are to ensure the system will be solvent long term and to make it easier for workers to switch jobs and for parents to interrupt their careers to raise children.
What are the criticisms?
The reforms are unpopular. An Ifop survey found 73 percent in favor of keeping the retirement age at 62.
Raising it to 65 is the most contentious proposal. Macron may compromise and allow early retirement for some.
Another criticism is that the size of future pensions would be determined by a lifetime of earnings — through the points system — rather than the 25 best-paying years.
On the other hand, the share of income over which workers pay 28 percent in contributions is lowered from €29,000 to €10,000 per month. The combined effect will be that the rich get to keep more of their money while they work, but receive a lower pension when they stop working.
The main concern of experts is that the state could change the value of the points if — as expected — the working population continues to shrink relative to retirees.