Reform of the pension system: reaction from unions and employers

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In March 1999, less than a year after the Prime Minister asked him to conduct an assessment of on the prospects for the future of the French pensions system, Jean-Michel Charpin submitted his findings. On presenting the report, Mr Charpin was keen to point out that it was an assessment produced through consultation, rather than one endorsed by all parties. In fact, the report provoked varying degrees of criticism from the social partners.

In 1998, the Prime Minister, Lionel Jospin, requested the commissioner of the National Economic Planning Agency (Commissariat Général du Plan), Jean-Michel Charpin, to draw up an assessment of the French pensions system (FR9812147F), examining the basic state retirement pension scheme and a possible re-engineering of both public and private sector pension plans. Mr Charpin's report (FR9903168N) was officially submitted to the organisations concerned on 25 March 1999 at the final meeting of the consultation committee set up to feed into the assessment process, made up of trade unions, employers' associations, pension scheme officials, pensioners' representatives and the ministries concerned.

The report provides an assessment of the situation based on a certain number of macro-economic assumptions and outlines various potential reforms. The report also sets out the methods to be adopted for the proposed reform - a decentralised consultation process for each pension scheme and the creation of a steering mechanism to implement reform.

The social partners were asked to put forward their reactions and proposals to be included in an appendix to the report. The Prime Minister was due to study the entire report around mid-April and decide on the approach and timetable for the pension reform, scheduled for the second quarter of 1999.

The key proposals

The main recommendations included in the Charpin report are as follows:

• the contribution period necessary to qualify for a full pension in both the private and public sector should be extended to 42.5 years. Employees in the public sector, whose contribution period has remained set at 37.5 years, compared with 40 in the private sector, would see this period progressively raised over the next 20 years by one quarter per year to bring them into line with workers in the private sector;

• less penalisation of workers who opt for early retirement (before the end of their full contribution period or before reaching 60 years of age). Currently, in the private sector, a 10% cut in the payable pension is applied for every year of contribution shortfall. This mechanism would be applied to workers across the board, but the penalty would be reduced to 4.8% per year of contribution shortfall;

• the reserve fund of FRF 2 billion created by the social security law for 1999 to ensure the balance of "pay-as-you-go" pension schemes (whereby those currently in employment pay for the pensions of those currently in retirement) would be consolidated and beefed up. This fund's total assets would have to be equivalent to 3% of GDP if contribution increases were to be evenly distributed, in anticipation of radical demographic changes, and to 10% of GDP if the aim was to ensure stable funding for pay-as-you-go systems; and

• the creation of a steering mechanism to oversee the pension reform process and regularly take stock of economic and demographic data. The actual details with regard to the make-up and functioning of the system are yet to be laid down.

Reactions range from criticism to open hostility

The report was met with a barrage of criticism when it was presented to the social partners.

All the trade unions stress the need to tie in the issue of pensions with that of employment and to avoid piecemeal measures. They point particularly to the apparent contradiction between the plan's major recommendation - extending the pension contribution period to 42.5 years - and the high unemployment rate in France which hits young people and workers over the age of 50 hardest.

However, differences do exist in the reactions of the various trade union organisations:

• CFDT, in particular, considers the findings of the plan and the need for a progressive harmonisation of private and public sector pension scheme procedures to be warranted, but does not go so far as to advocate aligning the special public sector pension schemes with the general scheme;

• CFE-CGC has come out in favour of harmonising the public and private sector schemes;

• CGT has given up on pushing for a return to a 37.5-year contribution period for the private sector. However, it sees the extension of the contribution period as socially unacceptable and economically illogical;

• CFTC appreciated the "pedagogical nature" of the Charpin report.

• CGT-FO and FSU announced that they would be mobilising their membership to demonstrate their hostility to the proposed reforms.

By contrast with the unions, employers' associations not only approve the extension of the contribution period but also believe that it should be raised progressively to 45 years (without a specific deadline) to ensure the financial balance of pension schemes until 2040. In addition, the main employers' body, MEDEF is proposing that the pension calculation formulae of the general scheme and special public sector schemes be standardised. A model based on the one used in the AGIRC and ARCCO supplementary pension schemes should be implemented, whereby pension entitlement would be calculated on the individual's entire career. Finally, the setting up of pension funds - thus creating a third component to the pension system - is considered essential. These pension funds should be financed through contributions exempted from tax and social security contributions. It would not be compulsory to contribute to pension funds but it could be made so through company-level bargaining.

Commentary

In light of the very confrontational atmosphere, the Jospin government has very little leeway, since the dark cloud left by the industrial action over proposed social security reform in December 1995, which led to the fall of the Juppé government, hangs over the implementation of this reform. The decentralised consultation phase with the social partners promises to be very sensitive as already indicated by the rift between the employers' counter-proposals and the reactions of several trade unions, which themselves point to heated debate within the unions. Despite the position taken by the CGT confederation, the secretary general of the CGT civil servants' federation has been critical of unification of the contribution period at 42.5 years and is instead advocating that it be brought into line with the current 37.5-year period applicable in the public sector. Similarly the railworkers' federation within CFDT (which opposes general secretary Nicole Notat) has opted to go against the confederal line on the phased-in harmonisation of special and general schemes, on the grounds that the extension of the contribution period goes against the rationale of the current move to the 35-hour working week and of job creation. In a letter to the National Economic Planning Agency, it warns of major industrial unrest if the special pension schemes for the SNCF rail company are threatened.

The consultation and negotiation process will probably look at special pension schemes one at a time and even on a company by company basis, in order to avoid any stalemate. It is possible that solutions will be arrived at on a case-by-case basis, depending on the balance of forces in each and the grassroots support that can be brought to bear. (Catherine Sauviat, IRES)