Unions oppose government bill on pension reform
With the number of pensioners in France set to increase rapidly, the French government has introduced reforms to the public pension system, which include increasing the age at which French citizens will be entitled to a state pension from 60 to 62 years. It will increase by four months a year from 2011 to 2018. Four out of five of France’s large trade unions, and opposition parties, have expressed their opposition and French workers generally want to preserve the status quo.
On 13 July 2010, the Council of Ministers introduced a bill that increases the legal age of retirement from 60 to 62 years and increases the pension contributions of civil servants – see government position paper (in French). The bill was defended by Minister of Labour Eric Woerth, and was subject to examination by the National Assembly and the Senate before being discussed by parliament at its plenary session from 7 September. The government intends to adopt the legislation ‘at the end of October’ according to French President Nicolas Sarkozy.
The bill, built on the financial projections of the Pensions Advisory Council (COR), will increase the legal age of retirement from 60 to 62 years between 2011 and 2018, at a rate of four months per year. The bill has provoked hostile reaction from the trade unions, with the exception of the French Confederation of Professional and Managerial Staff – General Confederation of Professional and Managerial Staff (CFE-CGC).
Process of reform
Charged with making proposals based on strong financial evidence and ensuring their effectiveness, on 14 April the COR published its updated financial projections which will form the basis of discussions between the government and its social partners. Due to the uncertain long-term effects of the current financial crisis, the COR has provided three long-term economic scenarios (ranging from pessimistic to optimistic) which are influenced by two factors, namely the unemployment rate and productivity:
- Scenario A: Long-term unemployment will be 4.5% and labour productivity will be 1.8%;
- Scenario B: Unemployment will be 4.5%, but labour productivity will be 1.5%;
- Scenario C: Long-term unemployment will be 7% and labour productivity will be 1.5%.
The number of pensioners in France is set to increase rapidly from 15 million in 2008 to 22.9 million in 2050 and the current demographic ratio of 1.7 (1.7 economically active people for every retiree) will fall over time to 1.2. This ratio would be reduced in Scenario C due to the effects of higher unemployment.
The estimated deficit of the French state pension system will be 1.7% of gross domestic product (GDP) in 2010 (€32 billion) due to the fall in employment, which will result in a reduced income for the public pension system. In the medium term (2015–2020), the impact of the current crisis on the country’s finances compounds the effects of an ageing population. In 2015, the required finance for the public pension system will be 1.8% of GDP (€40 billion) and by 2020 it will be 1.7% of GDP according to Scenario A, 1.9% for Scenario B and 2.1% for Scenario C. The financial requirement of the public pension system in 2050 will depend further on the country’s economic growth and on long-term unemployment, although the outlook for both should improve as a result of the expected recovery. The amount required by the pension system by this date will reach 1.7% of GDP (€72 billion) according to Scenario A, 2.6% (€103 billion) for Scenario B and 3% (€115 billion) for Scenario C.
By 2020, the amount of government income generated through taxation as a percentage of GDP, required to cover the annual pension funding requirements, will be 3.8% in Scenario A, 4.2% for Scenario B and 4.7% for Scenario C.
Provisions of proposed bill
If the bill is passed, the legal age of retirement will be increased beyond 60 years. It will increase by four months every year, from 1 July 2011, reaching 62 by 2018. The duration of individual contributions for citizens receiving a full pension on retirement was set at 40 years in 2008 and will rise to 41 years in 2010 and to 41.5 years by 2020. However, the existing policy that covers those who began working at an early age (14, 15 or 16 years of age) will remain. Those individuals whose health has deteriorated (who are assessed as having a minimum of 20% disability) as a result of work will be permitted to retire at age 60 with a full pension.
In addition, there will be changes in the amount of income tax payable on certain levels and types of income; for example, increases in the highest band of income tax, on the levies of stock options, on supplementary pension schemes, on capital income and on inheritance income.
Over time, the French public pension system will mirror that of the private sector system through the proposed increases in the retirement age and the period over which contributions are made, and by bringing contribution rates in the public sector into line with those in the private sector. To promote the employment of older workers, measures will be introduced to offer incentives to employers to hire job applicants aged over 55 and to develop tutoring in companies (FR1007051I).
In the past in France if a young person was unemployed for a short period, this time would still count towards their pension, despite their inability to make financial contributions. In contrast, when a woman took maternity leave her pension may have been affected because she was absent from work and contributing less to the public pension. Under the proposed reform, women would no longer be disadvantaged in this way. Their maternity allowance will be taken into account in the final pension calculation.
Reaction of trade unions
Minister of Employment Éric Woerth welcomed the beginning of the consultation, explaining that his government had not closed the door to discussions and stating that there was consensus across the country about the need to change the existing arrangements. However, trade unions have not given their support to the bill and four of the five large trade unions have expressed outright opposition.
The General Confederation of Labour– Force Ouvrière (CGT-FO) called for the withdrawal of the bill while the French Democratic Confederation of Labour (CFDT) demanded it be rewritten, due to the costs of the changes being met largely by employees (estimated at 85%), and commented that the government had failed to take into account the reduced life expectancy of workers in certain occupations. The General Confederation of Labour (CGT) complained that the bill represented a social retreat without precedent and its leader stated that ‘the bill should not be examined in its current form by the Council of Ministers on 13 July, but there should be a true negotiation’. The French Christian Workers’ Confederation (CFTC) deplored the universal increase in the retirement age and the fact that capital income will contribute only 10% of the financing. CFE-CGC, which chairs the national pension assurance fund (Caisse nationale d’assurance vieillesse), pointed to the lack of finance designated for the pension system, but greeted as significant the measurement that will take maternity leave into account when calculating the public pension.
Sandrine Jean, Human and Employment Research Agency (HÉRA)