From the Newsdesk

Bis Repetita: Another Attempt at Pension Reform in France

The new year is off to a rocky start as President Emmanuel Macron pushes ahead with plans to overhaul the French pension system. An initial attempt in 2019 to whittle down the number of industry-specific regimes sparked massive protests and strikes that underlined the complexities of a challenge which has thwarted successive presidents and governments.
© Klawe Rzeczy

Pension reform (la réforme des retraites) has always been a hot-button issue in France. One of the main reasons is the sheer number of systems applicable to different professions and economic sectors. A total of 42 regimes, many with different rules on contributions (les cotisations) and benefits, currently exist alongside the state system. Another vexatious question is the age of retirement and pension entitlement. At present, the official age of departure is 62 but, because of the complexity of the architecture and the multiplicity of rules and exceptions, many are able to retire at 60 – earlier than in any other OECD country. (According to OECD data from 2020, the effective labor market exit age in France is 60.4 years for men and 60.9 for women. The equivalent figures for the U.S. are 64.9 and 64.7.)

Moreover, the French system is more generous than those in most other nations, with retirees receiving some 60% (before tax) of their previous earnings. Due to the economic and demographic pressures caused by these unwieldy systems, economists and policy makers have long called for a major overhaul. But previous efforts at root-and-branch reform – under Jacques Chirac in 1995 and Nicolas Sarkozy in 2010 – brought millions of protestors onto the streets, and the various plans had to be shelved or watered down.

When Mr. Macron ran for the presidency in 2017, pension reform was one of the key planks of his campaign. He promised to merge the existing regimes into a single universal system, under the slogan: Pour chaque euro cotisé, le même droit à la pension pour tous ! (“For every euro paid in, the same rights for everybody.”) The new arrangements were to be based on the principle that, for each day worked, an employee would earn points that would count towards their future pension benefits. The official retirement age would stay at 62 but benefits would be trimmed for anyone leaving the labor force before a so-called âge pivot (“pivot age”), set at 64, while additional incentives would be offered to anyone staying on after that time.

As expected, the proposals triggered a popular backlash, which was amplified by a wave of often-violent protests against the government’s plan to slap an environmental tax on gasoline, having already scrapped the wealth levy and cut corporation tax. Public-sector unions staged one of the longest-ever transportation strikes, and industrial unrest affected many other sectors. Then along came the Covid crisis, which pushed many of the government’s priorities onto the back burner until the end of the president’s first term.

Seeking re-election in 2022, Mr. Macron dropped the idea of a universal pension system from his campaign program but insisted that the legal retirement age had to be raised to 65. He once again beat Marine Le Pen, who had dismissed the president’s proposals and promised to maintain the legal age between 60 and 62. Tellingly, Mr. Macron’s margin of victory was narrower than in 2017. In the legislative elections held two months later, he lost his absolute majority in the National Assembly.

Unable to rely on an acquiescent Parliament, the president has had to cobble together a coalition of parties in order to advance his legislative agenda. Since June 2022, his administration has faced multiple no-confidence motions and been forced to resort repeatedly to a constitutional maneuver that overrides the need for a parliamentary vote. The lack of a majority will be a major Achilles’ heel in the forthcoming battle over the retirement age. Although the proposed increase from 62 to 65 would be gradual, with four-month increments every year though to 2031, opposition remains fierce, not only among Mr. Macron’s political adversaries (and some of his coalition allies) but also among trade unions and broad swathes of civil society.

One of the reasons for the simmering discontent is that the measures would disproportionately penalize people in poorer socioeconomic positions who begin working earlier. In the months preceding the planned submission of the proposals to Parliament, the government held talks with the relevant stakeholders and, in light of the hostile response, decided to postpone the vote until early 2023. Crucially, it has chosen to present the reforms as part of an amended Social Security Financing Act so that, if necessary, it can use a confidence vote to force the legislation through.

The ramifications of the reform are far from clear. And the unrest that has dominated the headlines in recent months will likely continue, particularly since France, like many other economies, is facing rampant inflation and a severe cost-of-living crisis. Any perceived attempt to add fuel to an already growing fire could further divide a fragmented majority and bring down the government. Yet Emmanuel Macron has staked his political capital and reputation on a successful outcome. Whatever happens at the vote in the National Assembly, the rest of the year promises to be turbulent.

Article published in the February 2023 issue of France-Amérique. Subscribe to the magazine.