Report launches new stage in pensions debate

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In January 2000, France's Economic and Social Council adopted a report on the reform of the pensions system. The report takes a very different approach to that of the controversial earlier Charpin report, the other main contribution to the government's thinking on this issue. The majority of trade unions (except CFDT) are in favour of the new report, but employers voted against it. The government is due to announce the main lines of its reform proposals in February 2000.

For the past decade, successive French governments have asked various experts to review the retirement pension system. The current Socialist-led government is due to base its guidelines for pensions reform on two reports. The first of these, was commissioned from Jean-Michel Charpin, commissioner of the National Economic Planning Agency (Commissariat Général du Plan), by Prime Minister Lionel Jospin. The Charpin report's assessment of the pensions system, submitted in March 1999, provoked much criticism from the social partners, in particular the trade unions, (FR9904174F). The second of these reports has been drawn up by the Economic and Social Council, (Conseil Economique et Social, CES) (FR9910115N) which, acting on its own authority, took on the task of reviewing this issue in April 1999. The CES member appointed as rapporteur, René Teulade, recently submitted his recommendations, which were adopted on a majority vote by the Council in early January 2000.

The Teulade report - an antidote to the Charpin report

From mid-December 1999, following the Charpin report, the government has been in consultation with the social partners on a framework for pension reform. The Prime Minister's social affairs advisor met with the five representative trade union confederations and the MEDEF employers' confederation to contribute to the preparation of guidelines for an overall pensions policy, which is to be announced by Prime Minister Jospin in early 2000. Therefore, the submission of the Teulade report was very timely for the Prime Minister. The Teulade report takes a resolutely optimistic stance, though not without ambiguities, that is diametrically opposed to the Charpin report. The Teulade report points out the central role played by economic growth in the financial equilibrium of the pensions system and states that funding problems in the present "pay-as-you-go" system (whereby those currently in employment pay for the pensions of those currently in retirement) would not occur in a context of economic expansion (based on an assumed annual growth rate of 3.5% over 40 years). Therefore, the report does not recommend the setting up of private pension funds as a way of solving the pension system funding problems. Neither does it advocate longer contribution periods for entitlement to a pension at a time of high unemployment, as suggested in the Charpin report.

The Teulade report does, however, advocate various progressive measures to address more effectively both macroeconomic uncertainties, in particular long-term economic growth rates, and the erosion of the replacement rate of the labour force, particularly affecting private sector employees. The report recommends:

• strengthening the contingency fund - currently standing at a mere FRF 2 billion - created in 1999 to offset increases in pensions spending from 2005 (FR9812147F);

• the creation of a permanent "watchdog" on pension issues, managed by the social partners and the government;

• a progressive and negotiated return to an indexation of private sector pensions based on wages rather than on consumer prices, as was institutionalised under the 1993 Balladur pension reforms; and

• curbing the level of complete withdrawal by employees from the labour market by abolishing government assistance to companies for this purpose and replacing them with progressive and voluntary early retirement measures. This was one of the measures advocated by the recent Taddéi report, which noted that in France, the older sections of the working population are being excluded at an increasingly early age. The Taddéi report was commissioned by the Prime Minister, and was not unanimously supported by the whole government and Economic Analysis Council (Conseil d'analyse économique) experts, who severely criticised the approach and policies it advocated.

Unions divided, opposition from employers

The CES opinion based on the Teulade report was adopted by the majority of the Council's members: 100 in favour, 62 against and 39 abstentions. It was approved by the CGT, CGT-FO, CFTC, CFE-CGC and UNSA trade unions. CFDT abstained, as did the representatives of state-owned companies. CFDT had been in favour of the overall philosophy behind the Charpin report and strongly criticised the fact that the Teulade report failed to address the issue of overhauling special and civil service pension systems and did not set out details of the terms and conditions for bringing these systems into line with the general system. CFDT challenged the assumptions made in the Teulade report about changes in employment levels. It also claimed that the report contained insufficient analysis and proposals.

Employers' associations are fiercely opposed to the Teulade report. Representatives of private companies voted against the CES opinion, calling it "unrealistic and irresponsible". In particular, they spoke out against what they saw as exaggeratedly optimistic assumptions of strong economic growth, failure to reform special pension schemes and the rejection of pension funds as a funding solution for pensions. MEDEF has also announced that it intends to pull out of all jointly-managed social protection bodies by the end of 2000, in particular those relating to the basic and supplementary pension systems as well as the unemployment benefit system, if the management of welfare agencies had not been overhauled by then (FR9912122F).

Commentary

The Teulade report unquestionably came at the right moment, taking a lot of the drama out of the follow-up debate to the Charpin report. It enabled the Jospin government - with an eye on the forthcoming election timetable - to avoid or postpone unpopular measures, in particular the re-engineering of the special and civil service pension schemes. The 1995 industrial action over social security reform which led to the fall of the Juppé government is still very fresh in everyone's mind. It will be easy for the Prime Minister to steer a middle course between the Charpin report's exaggeratedly pessimistic viewpoint and the undoubtedly overoptimistic Teulade report.

In a speech in February 2000, the Prime Minister will unveil his government's major thrust for the overhaul of the pensions system. He is likely to opt for the least controversial proposals. He will undoubtedly support the strengthening of the contingency fund to offset the "retirement boom" in 2005. He will perhaps consider examining the indexation formula for private-sector pensions to bridge the gulf between the public sector systems and the general system. This would bring all pension systems in line with the most advantageous ones and therefore lessen the need for an overhaul of the public sector pension systems. The government might also take this opportunity to announce additional measures, such as the creation of "employee savings funds" (fonds d'épargne salariale), an issue on which the government has commissioned a taskforce of experts (the Foucauld and Balligand report) and a working group of Socialist Party experts (the Sapin report). Such funds would enable the government to put forward an alternative to the establishment of pension funds - a very controversial issue, especially for the unions. Employee savings funds in their present form are designed for medium-term saving, (five years in the case of "company savings plans" - Plans d'épargne entreprise). The compulsory savings period could be extended, thus making them more akin to retirement savings plans. (Catherine Sauviat, IRES)