Explainer

The Arguments For and Against French Pension Reform

The current retirement age is low, but the French object to working longer.

Emmanuel Macron
French president Emmanuel Macron confers with his staff in the Elysée Palace in Paris, February 5, 2020 (Elysée/Soazig de la Moissonniere)

Emmanuel Macron’s government has proposed to raise the French pension age from 62 to 64 and abolish early retirement in the public sector.

Pension reform was one of the reasons I endorsed Macron for a second term. French pensions are among the most generous in the world, yet Macron’s predecessors balked at raising the retirement age for fear of protests.

I have an op-ed in EUobserver arguing Macron is doing the right thing. I will summarize my arguments here and also give the arguments against reform.

What will change

First, the reforms themselves. Macron would:

  • Raise the retirement age to 64.
  • Allow early retirement for those who have worked at least 43 years, up from 42.
  • Allow early retirement for workers with disabilities at 55.
  • Award pension rights for maternity and paternity leave in addition to work.
  • Increase the minimum state pension to 85 percent of the minimum wage, or €1,200 per month.

Currently state pensions, which are funded by a 15-percent payroll tax (7 percent paid by workers, 8 percent by companies), are worth 50 percent of a retiree’s former income. The minimum is €11,000 per year (€916 per month).

  • Abolish early retirement for new hires at the central bank, the state-owned energy sector and in the Parisian public transport company.

Their mandatory pension plans allow retirement between the ages of 52 and 57.

What will not change

  • Other occupational pension plans are not affected.

These funds, managed by employers and trade unions, raise pensions from 50 to between 70 and 80 percent of a retiree’s former salary. Contributions are another 3 to 8 percent of salaries for employees and 3 to 13 percent for firms.

  • Private pension insurance is not affected either.
  • Reforms would not apply to anyone in or close to retirement.

Arguments for reform

  • The statutory French pension age of 62 is low by European standards. In most European countries, it is 65 and rising to 67.
  • The actual retirement age is low too. On average, French men stop working at 60 and women at 61. The EU averages are 63 for men and 62 for women. French life expectancy at birth is 80 for men and 85 for women.
  • French pensions are expensive. France spends 16 percent of its national income on pensions compared to 13 percent in Germany and the Netherlands and 14 percent EU-wide.
  • The state pension fund, which relies on current workers to fund retiree benefits, is running out of money. A surplus is expected this year, but as early as 2027 the system could be €12 billion in the red. The reason: the number of workers per retiree is falling, from 2.1 in 2000 to 1.7 in 2020 to a projected 1.2 by 2070.
  • The current system is inequitable. Public-sector workers are able to retire in their fifties while mothers who interrupted their careers to raise children often have to work into their mid- to late-sixties to make up for the years they didn’t pay into a pension scheme.

Arguments against: the reforms go too far

  • It is unfair to raise the retirement age when French companies won’t hire older workers. France’s labor force participation rate is similar to that of other wealthy nations until the age of 60. Between the ages of 60 and 64, just 35 percent of the French remain in work compared to 62 percent in Germany.
  • Macron doesn’t have a majority. He won reelection on a platform of pension reform, but his party lost its majority in the National Assembly.
  • People don’t want it. An Ifop survey found 22 percent support for raising the retirement age. Elabe, another polling firm, found 47 percent of the French want to keep the retirement age at 62, and 25 percent would lower it.

Argument against: the reforms don’t go far enough

  • 64 is still low. By the time France reaches 64 in 2030, other European countries will be pegging their retirement ages to life expectancy.
  • Occupational pensions remain balkanized. Macron would phase out four funds. 38 more, including for doctors, teachers, the police and the state railway, remain, with their superfluous overhead and in some cases poor management. Macron’s original plan was to merge all 42 funds into a single, points-based system. That would cut costs and make it easer for workers to switch jobs. Business associations and trade unions successfully resisted the idea.

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