Government's pension reform takes shape

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In May 2003, the French government issued a draft bill on pension reform. It provides for a series of concrete measures with an impact on the general state pension scheme, the civil servants’ schemes and those for the self-employed. The proposals include measures to lengthen working lives and contribution periods, and to introduce greater flexibility and freedom of choice for workers. The draft bill has provoked fierce responses from trade unions, which called a day of national mobilisation on 13 May.

France's conservative government has been preparing a major reform of the state pensions system for some time (FR0212104F and FR0302108F). In April and May 2003, the main features of the reform were laid out in three stages. On 18 April, during bilateral talks, the Minister for Social Affairs, François Fillon, presented a series of concrete reform plans to the social partners. The Minister added a number of extra details in a television programme a few days later. Lastly, a draft bill was presented in cabinet on 7 May.

Main points of the draft bill

The governments's draft bill has three main goals:

• ensuring a high level of pensions by extending the length of the working life and contribution periods;

• safeguarding the principles of equity and social justice in retirement schemes; and

• enabling everyone to create a pension and retirement arrangement for themselves, by granting more flexibility and freedom of choice.

The main proposals under each of these objectives are set out below.

Longer working life contribution periods

• The government will use as a reference a 'replacement rate' for pensions of an average of two-thirds of income from employment, as of 2020.

• By 2008, all employees, except for those that are covered by special schemes (in publicly-owned companies), will have to pay contributions for 40 years in order to avail of a full state retirement pension. The contribution period in the public sector will thus be brought into line with that of the private sector.

• To foster the employment of people aged over 55, a series of measures are planned, as follows:

  • early retirement under the state scheme will be limited to measures taken as part of redundancy plans and those cases where the arduous nature of an employee's work is taken into consideration under the 'early retirement for certain employees' (cessation anticipée d'activité pour certains travailleurs salariés, CATS) scheme (FR0102131F). Progressive early retirement (préretraite progressive, PRP) and the strand of the CATS scheme not linked to hardship are to be abolished. Company early retirement schemes will be subject to a contribution of 23.85% paid into the Pensions Reserve Fund (Fonds de réserve des retraites) (FR0105155N);

  • a pension supplement will be created, worth 3% per year worked over the age of 60 and beyond the period of contributions required for a full pension;

  • the age at which an employer can oblige an employee to retire will be raised to 65, instead of the age at which the employee can claim a full pension;

  • the progressive retirement scheme (retraite progressive) will be extended to people who cannot claim a full pension.

  • the rules governing pensioners’ employment will be made more flexible and the general and other schemes will be brought into line in this respect; and

  • employers will be exonerated from paying the 'Delalande contribution' if they make redundant an employee hired after the age of 45 (instead of the current 50), even if the employee was not unemployed before taking the job (this contribution is a penalty on employers which make older workers redundant).

• To stabilise the relationship between the duration of the working life and the length of the retirement period by 2020, the contribution period for a full pension will be raised to 41 years by 2012 and almost 42 years by 2020, given the current pattern of increasing life expectancy. An independent commission will be in charge of examining the implementation of this rule every five years.

Equity and social justice

• For the lowest-paid employees, the objective is to achieve a replacement rate (ie pension level) worth 75% of the net SMIC minimum wage after a full career (adding together the pensions from the basic and supplementary state schemes).

• Employees who began to work at 14 and 15 will be able to retire at 58 and 59, under certain conditions, including obtaining the approval of the relevant supplementary pension schemes.

• All pensions will be index linked to the cost of living, as the basic pension under the general scheme has been since 1993.

• For civil servants, the pension will be calculated on the basis of pay over the last three years of the career (instead of the last six months, as at present).

• For civil servants, the one-year contribution period 'bonus' for each child they have, which currently applies to women only, will be extended to men. For children born from 2004 onwards, the bonus will correspond to the length of the parent's interruption or reduction of work, with a maximum of three years per child.

• Survivors’ pensions will be simplified and means-tested.

• The creation of an 'additional' pension scheme for civil servants is to be discussed. It would enable the bonuses, which, under current rules, are excluded from the calculation of their pensions, to be taken into consideration.

• A compulsory supplementary scheme will be set up for self-employed people in industry and retail, in order to improve their social welfare. The basic scheme for self-employed professionals will be radically reformed and the contributions will be paid into a centralised fund.

Flexibility and freedom of choice

• For an employee who wants to retire between 60 and 65 without the required length of contributions to earn a full pension, the early retirement 'reduction coefficient' will be reduced from 10% per missing year, to 6% as of 2009. In the civil service, a similar reduction coefficient will be progressively implemented (none currently exists), again to reach 6% per missing year by 2013.

• The possibility of workers 'purchasing' quarterly periods of missed contributions will be broadened, particularly to take account of the periods spent in education up to the age of 40, up to a maximum of 12 quarters.

• In the general scheme, part-time employees will be able to pay contributions on the basis of full-time work. In the civil service, years worked part time will count as full-time years as far as pension entitlement is concerned.

• Those insured will have access to an estimate of the value of their future pension.

• A number of provisions aim to make retirement savings schemes more accessible.

Next steps

Commenting on this draft bill, Mr Fillon confirmed that discussion was not over, especially on the issues of longer working lives and minimum pensions. The pension reform bill was due to be submitted to the three Civil Service Higher Councils (Conseils supérieurs de la fonction publique) on 19 and 20 May before being examined by the Council of State (Conseil d’Etat). The final bill should be presented in cabinet on 28 May.

A national information campaign on the details and practical consequences of the pension reform has been entrusted to two advertising agencies, Publicis and Altédia. It is expected that between EUR 15 million and EUR 20 million will be spent on this campaign.

Reactions

On 3 April 2003, four trade union organisations organised strikes and demonstrations to protest against the planned pension reform: the General Confederation of Labour (Confédération générale du travail, CGT), General Confederation of Labour-Force Ouvrière (Confédération générale du travail-Force Ouvrière, CGT-FO), National Federation of Independent Unions (Union nationale des syndicats autonomes, UNSA) and United Union Federation (Fédération syndicale unitaire, FSU). Breaking with the union solidarity expressed in a joint statement issued on 6 January 2003 (FR0302108F), the French Democratic Confederation of Labour (Confédération française démocratique du travail, CFDT), French Christian Workers’ Confederation (Confédération française des travailleurs chrétiens, CFTC) and French Confederation of Professional and Managerial Staff-General Confederation of Professional and Managerial Staff (Confédération française de l'encadrement-Confédération générale des cadres, CFE-CGC) refused to take part, stating that the mobilisation was unfounded before the government had presented its reform proposals.

After the government presented its objectives, the unions' united front was rebuilt. On 23 April 2003, the five major confederations (CGT, CGT-FO, CFDT, CFTC and CFE-CGC), UNSA and FSU called another day of mobilisation on pensions for 13 May. On 24 April, the seven civil servants’ unions affiliated to the above organisations also called for mobilisations on the same day. On 25 April, seven of the eight railworkers’ trade unions issued a strike call to reject the announced alignment of their special pension scheme with the conditions of the general scheme.

The government’s draft bill strengthened the unions’ resolve. A further national day of action is planned for 25 May by CGT, UNSA and FSU.

The responses from various other organisations have added their weight to those of the unions. The Federation of Surviving Spouses Associations (Fédération des associations de conjoints survivants, FAEC) has expressed its opposition to the reform of survivors’ pensions, especially the implementation of an upper limit of income. The National Federation of French Families (Fédération nationale Familles de France) has challenged the extension of family-related pension benefits to men, fearing that it might lead in the long term to the abolition of these benefits.

Commentary

The presentation of the government's draft bill on pension reform constitutes a key step, even though most of the content of the 82 articles had been known about for a number of weeks. Civil servants are, unsurprisingly, those most affected by the reform (with a rise in the length of contributions, the establishment of a pension reduction coefficient and pension calculation based on the last three years of the career), even if the government has been careful to maintain some of their relative advantages, such as keeping the special retirement age for 'active service' (eg from 50 for police officers or 55 for nurses) and not raising their contribution levels. The plan to index-link pensions to the cost of living, one of the causes of the decline in the value of pensions in the private sector since 1993, has not been questioned.

Even if the degree of detail in the proposals shows that adjustments will be limited, a number of points are still open to amendment. For private sector employees, this includes the income replacement rate of pensions for people who have earned the SMIC minimum wage or little more throughout their working lives, and the options for retirement before 60 in the case of long working lives. For civil servants, the methods for taking account of bonuses and the calculation of pensions on the basis of the last three years of the career might be up for negotiation. (Annie Jolivet, IRES)