How can France best reform its pensions system?

Can president Emmanuel Macron reform the French pensions system?

As French unions and workers are marching across France in opposition to the reform project for the sixth day of a renewable strike that some hope will be ‘unlimited’, the question of the reform’s feasibility is being raised.

The French pensions reform has been partially revealed in a report by the French High Commissioner for the reform, Jean-Paul Delevoye, in July, but much of the detail remains unknown so far.

The French government is expected to publish a detailed proposition this week.

Emmanuel Macron said on Monday that the pensions reform is “essential” in the country. “It falls under the government’s action and under the announcements that will be made”.

A complex system

The French pensions system is complex: it is composed of 42 different systems, based on the specificities of each professional sector.

Merging these into one “universal” points-based system was one of Macron’s key campaign pledges.

“What Macron promised to do during the presidential campaign was to start by simplifying the extraordinary complex French pensions system”, Monika Queisser, chief of social policy at the OECD, told Euronews. “There are 42 pensions systems, each with their own rules, cover different groups of the population, and provide different benefits.

In a note from 2015 on France’s pension policy, the OECD said that “the French pensions system offers good protection but through a complex structure.” But despite previous reforms, the system “remains very atomised” with “problems of coordination”. The OECD noted that the parameters and pensions calculation rules varied between the public and private sectors, as well as between the 42 systems, which it said created “great inequalities”.

French workers, the report noted, generally retire earlier than the OECD average:

Macron’s task: to simplify

The “complex” current system needed reforming because it confuses many workers, Queisser said: “If people change jobs, they don’t understand how it affects their pension”, she said, “and they have doubts about what is fair because it works differently depending on public and private sectors.”

“The objective is to switch the logic of how the system works and make it unified, and to have people earning the same benefit from one euro’s contribution, compared to now where one euro contributed can yield to different benefits depending on what system you’re in,” she added.

“The French pensions system is split up, complex, incomprehensible for the majority of the public and its long-term stability is questioned”, the economists Antoine Bozio and Thomas Piketty wrote in their 2008 manifesto, ‘For a new pensions system’, which advocates for a unified system but with variations from Macron’s project.

They recommended the creation of “a unified system of individual contributions accounts, offering the same rights and rules to all workers”. This new system, they wrote, would “facilitate professional mobility and guarantee financial balance” as well as “give an advantage to the less well-off and better help those whose career has known hazards”.

Macron has said that each contributed euro will count as one point, the value of which is yet to be confirmed. Some worry that the value of the point might fluctuate as governments will set its value, and therefore directly affect pensions.

“Everyone will know what they contribute to get points, but no one will know how much benefit they will receive”, left-wing politicians from La France Insoumise, the Greens have warned in an op-ed. “The conversion of points into pensions might evolve based on the general direction of the economy.”

“It’s logical that people are worried about their future, but this could happen in any type of pensions systems,” Queisser said, adding: “It is true that at this point, no one can quite say how the point will evolve in the future.”

A more ‘universal’ system, but one that ‘modulates’ for populations at risk

Many agree on one thing: a reform is needed, and a ‘universal’ system would simplify things a lot. “The OECD has always been recommending more unification and a less complex system”, Queisser said.

Yet such a unified system should retain some modulations to account for a society that has become more “fragmented” than it was in the 1940s, when the French welfare was first introduced, Melissa Petit, a sociologist studying the economics of aging and pensions, told Euronews.

Careers are less linear, go from private to public, or from freelance to employed, some people want to accomodate time for themselves in between time at work, she said: “It’s not one system of ‘work in one job for you whole life, and you’ll have time to rest at the end’ anymore.” In this, Macron’s reform proposal offers solutions: points will be given during unemployment and maternity leave, for example, and provisions are planned for freelance workers.

But in other aspects, the reform lacks “a vision of equity”, she said: it fails in looking at broader social changes and risks “reproducing and widening inequalities”.

“There is no mention of the jobs that will disappear due to the digital revolution”, Petit said. Life expectancy, social classes, and to some extent the “enormous” gender imbalances in career and salary (which in turn affect pensions) are overlooked or not mentioned, she added.

The lack of employment of the elderly, too, remains an unanswered problem. And it is crucial: currently, Petit said, over 40% of new pensioners have not been in work for years. Queisser of the OECD also noted that the participation of older workers was “a challenge” for France. “And if someone struggles to find work once they are a certain age, this will have repercussions on their pensions”, Petit said.

The debate around pensions must be broader than people just looking at their own profession, since many will have several jobs or change sectors in their lifetime, Petit said. Instead, pensions should be based on a better understanding of someone’s career, and integrate the “modulations” of workers’ lives — maternity leave, training to switch jobs, unemployment periods, etc.

The proposal, she said, shows the government’s willingness to make the system fairer, but forgets to modulate based on the reality of modern careers, risking to “reproduce the inequalities of the labour market”.

Piketty, the economist and author of the best-selling Capital in the 21st century, has recently declared that France does need a universal system of pensions, but that Macron’s project is a “fraud” that will most favour the rich.

“Are we taking into account the life expectancy of workers? If the life expectancy of working class people is ten years lower than that of executives, and that this isn’t taken into account in the calculation, it’s an enormous fraud, because the poorest will contribute for those who live longer”, he told France Inter radio.

Piketty is among many who, despite support for a ‘universal’ system, has doubts about this reform.

Four economists who assisted Macron in the development of his economic pledges during the presidential campaign, Philippe Aghion, Antoine Bozio, Philippe Martin and Jean Pisani-Ferry, wrote an op-ed in Le Monde expressing their worries about the government’s reform, which they say “lacks clarity”.

“We see the creation of a universal and transparent system as a progressive reform. It is necessary for the French to rediscover their trust in a pensions system based on solidarity and distribution. It is necessary to stop sanctioning professional mobility and risk-taking in a changing economy,” the four economists, who are close to president Macron, wrote. But they added that “the debate on the pensions reforms is off to a bad start.”

The four economists have four recommendations:

to drop the age measures to “focus strictly on a systemic reform”;
to reassure the French about the value of the point in a points-based system by stating “stable and precise rules of indexation that would apply even during a recession”;
to guarantee the transparency of the system’s governance (they also say that unions should take part in the governance of the system, for a “social deal as broad as possible”)
to develop a transition strategy for the public sector, which in time should lead to the merging of the contributions and pensions rights between the private and public sectors, they say, with care to “re-balance” the remuneration of professions in which raises are less frequent, such as in education.

But the French government’s first and immediate task is to clear any doubt by releasing its detailed project, the economists say: “To succeed in such an ambitious reform, the government needs clarity on its goals, its parameters, on the future governance of the system and on the conditions of the merging of the existing regimes. So far, this clarity is lacking. To convince the French, the government must provide clarity as soon as possible.”

The French government is expecting to release a first draft of the proposal on Wednesday, but has said the debate remains open.

— to www.euronews.com