The pension reform project is a real obsession for French President Emmanuel Macron. The latest iteration of a work that has been put back on the drawing board a thousand times was presented by Prime Minister Elisabeth Borne to the National Assembly on Tuesday, January 10th. It causes many debates, raises questions, and risks to, once again, put the country on the verge of chaos.
The pension reform is a sea serpent that has poisoned French political life for many years. The essence of the French pension system dates back to the creation of the Social Security system in 1945. It is a pay-as-you-go system, which means that pensions are paid out of funds fed by the contributions of workers still in employment. Contrary to traditional bank savings or individual investment accounts, the pay-as-you-go system does not let you withdraw your own money upon retirement. All you earn is the right to someone else’s money at some future point in time. Whether or not you get any depends on factors beyond the control of the individual retiree. In order to receive a full pension, one must have contributed throughout one’s professional career and meet a minimum contribution period. In addition to the length of contribution, the retirement age is also a criterion, and the two sometimes compete with each other. The overall operation is based on a form of solidarity between the generations, but presupposes, to be sustainable and effective, that the ratio between retired and working people is to the advantage of the working people. If the population ages and the number of working people falls, the pension system is inevitably put at risk.
The French system is characterised by great complexity, due in particular to the existence of numerous special derogatory “regimes” for employees of large public companies (transport, energy), or very specific professions (sailors, dancers at the Paris Opera). There are no less than 42 of them.
In 2021, France spent €345 billion, or 13.8% of its GDP, on financing pensions. France is the third largest spender on pensions in the OECD (as a percentage of GDP), second only to Greece and Italy. Workers’ contributions alone are not enough to pay for all pensions but pay for about 80% of them. The state makes up the shortfall if necessary, through various processes of reallocation of public funds, in particular for some pension regimes that are under public responsibility. In 1999, an investment fund, the Fonds de Réserve des Retraites, was launched by the government of Lionel Jospin to be able to come to the rescue in case pensions could no longer be paid at the height of the ‘papy-boom’ – the onset of retirement age for the baby boom generation. With a reserve of €127 billion, it has not yet been used.
The first attempts at reform came in the 1990s when the recession caused a deficit. In 1995, shortly after the election of the right-wing president Jacques Chirac, who had come to power after fourteen years of socialism, Prime Minister Alain Juppé attempted an ambitious reform of the pension system, with two main axes: the abolition of special regimes, and the alignment of the civil service with the general scheme. This was followed by a social protest movement of unprecedented proportions, which has been remembered ever since. The country was paralysed for many weeks by massive strikes, and the government had to withdraw its project, even though it had been adopted by the Assembly. The trauma of 1995 has left deep marks on public opinion and the political class and still explains the concerns and reluctance surrounding any pension reform project.
In 2003, at the time of Nicolas Sarkozy’s presidency, Minister of Social Affairs François Fillon succeeded in bringing about a reform that allowed for the gradual extension of the contribution period to 42 years. In 2007, the system was completed by a partial reform of the special regimes. In 2010, the retirement age was raised from 60 to 62. Under socialist President François Hollande, in 2013, a new reform was implemented. It did not structurally affect the existing system but simply modified some parametric data (contribution rates for example).
Since his first election to the presidency of the Republic in 2017, Emmanuel Macron has announced that he wanted to tackle the poisoned file. At first, the stated aim was to ensure greater fairness between all the workers by simplifying the existing system. Greater equality between the workers would help control the potential growing deficit—but this goal was secondary. As Emmanuel Macron admitted in 2017 in his presidential programme, the problem of pensions “is not primarily a financial one.” The aim is to “clarify and stabilise the rules of the game, once and for all, by setting up a universal, fair, transparent and reliable system in which everyone has exactly the same rights.”
The broad outlines of the project were communicated at the end of 2019. It provided for the extension of the retirement age from 62 to 64 years, as well as questioning a certain number of advantages for civil servants and members of special regimes. It set up a universal ‘points’ calculation system. Rejected by all the unions, the project gave rise to a strong social protest movement which, although not equivalent to that of 1995, seriously disrupted the economy for several weeks. The COVID-19 pandemic forced the government to abandon its project, which resurfaced when Emmanuel Macron was elected for a second term.
The reform presented by Elisabeth Borne on Tuesday focuses on a few key points: raising the legal retirement age to 64 from 2030, extending the contribution period to 43 years from 2027, taking into account the arduousness of work, and abolishing special regimes for new entrants to the labour market. The idea is quite similar to the 2020 project: simplifying and harmonizing, as well as increasing the duration of contributions to increase the revenues.
At first sight, the need to reform the French pension system could seem obvious. But things are actually more complex. What is to be reformed? Emmanuel Macron himself, in a 2019 video that went viral a few days ago, quietly explained at the time that raising the legal retirement age was absolutely not necessary. In 2021 and 2022, the pension funds had surpluses of several billion euros. Although the situation is expected to deteriorate from 2023 onwards, a return to balance can be achieved in about 15 years, according to opponents of the reform. According to the COR (Conseil d’Orientation des Retraites, the official board dealing with pension matters), the deficit in the pension system would be just a bad moment, a consequence of the retirement of the post-World War II baby-boom generation, which should be amortized in a few years—different scenarios exist concerning the estimated date for the end of the deficit. Moreover, the deficit—€10 billion—is not that big in comparison to other figures taken from the French public finances. The “whatever it takes” policy during COVID has cost €300 billion alone. Every year, €42 billion go to various associations from the French state without any control and without any hope of seeing this amount reduced in the next few years—and nobody cares.
As an analyst from Le Télégramme points out, the pension system is indeed in deficit. But not to the point of being in danger, because solutions exist and the deficit is reduced, in most scenarios, over time. Nor is there any requirement that the pension accounts must be perfectly balanced. At the moment, this is all a political choice.
Basically, the government is not interested in a fundamental overhaul of the pension system. It simply has to manage a critical situation that it has itself created. Emmanuel Macron signed blank cheques all over the place during the COVID-19 pandemic—summed up by the formula “whatever it takes”—to artificially support an economy that he has himself paralysed beyond reason, and he is now paying for his extraordinarily expensive management of the crisis. He’s looking to reduce public expenditure and is somewhat obsessed with pensions. This obsession is understandable: the ‘pension burden’ in France is about 14% of GDP, while the European average is 10%. But if the share of pensions is 14% in France (the ‘expenditure’ side), the system is globally balanced, which means that the ‘revenue’ side is up to the task. The concern to adhere to a European ‘standard’—which yet does not exist in this area—is at play here.
The opponents of the project are numerous: six out of ten French people are hostile to it, according to the latest surveys. They are to be found in the ranks of the left-wing NUPES coalition as well as on the Right in the Rassemblement National. For Jordan Bardella, the new president of the RN, it is an “unfair and useless” reform, which is based on a logic that is above all accounting, without dealing with any of the fundamental issues: work, birth rate, and the dignity of old age at the time of retirement. Getting rid of special regimes and privileges is one thing, but extending the age of retirement or lengthening the years of contribution is another. The national Right party echoes its popular electorate, and not without reason: the extension of the retirement age is considered unrealistic, insofar as France already under-employs the over-fifties category compared with its neighbours. As a study by the newspaper Le Monde reminds us, it is the poorest who will have to bear the brunt of the reform by working longer, as the better-off will be able to afford to retire earlier, as is already the case in the United States and the United Kingdom.
On the political front, Emmanuel Macron’s MPs, who do not have a majority, know that they can count on the support of the centre-right party Les Républicains to vote for the reform alongside them. Les Républicains MPs want to appear as reasonable managers in this matter, and serve the interests of the government, while unable to propose an alternative vision and another model. But a genuinely conservative perspective, and one not just obsessed with economics—which all too often tends to be the only agenda of the Right—should make it possible to see things differently. For decades, France was known for its excellent productivity and for its ability to keep work within healthy limits. Working for the sake of working has never been part of the French DNA, unlike a certain American mentality that is now considered by some of the French elite to be the ultimate in achievement. At the time of General de Gaulle, in 1968, the French imagined that real progress would be to retire at the age of … 50. The absolutization of work as a place of human fulfillment is not a good thing in itself. Moreover, there is one major omission in all the discussions on pension reform: the question of the birth rate and its corollary, family policy. As the family defence association La Manif pour Tous reminds us in a press release, today’s children are tomorrow’s contributors, and there can be no pension reform without investment in the family. For the moment, the government seems to have “forgotten” this parameter.
