Pensions review group presents first report

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In December 2001, the government-appointed Pensions Stewardship Council (COR) issued its first report on the future of French pensions, providing a detailed analysis of current schemes and possible future reforms. Without recommending a particular option, which it sees as the responsibility of politicians, the COR identifies a number of principles on which to base future decisions.

The Pensions Stewardship Council (Conseil d'orientation des retraites, COR) was set up in May 2000 (FR0004159F and FR0107173F). It reports directly to the Prime Minister and is made up of 32 members: 16 social partner representatives - though the Movement of French Enterprises (Mouvement des entreprises de France, MEDEF) has refused to sit on the Council until the government commits itself to overhauling the pensions system; three members of the National Assembly; three Senators; four representatives of the state; the chair of the National Union of Family Associations (Union nationale des associations familiales, UNAF); the vice-chair of the National Committee of Retirees and Older People (Comité national des retraités et des personnes âgées); and four people chosen for their particular qualifications and experience in this area. The COR is chaired by Yannick Moreau.

On 6 December 2001, six months before the presidential election, the COR published its first report. After the 'Charpin Report' (FR9904174F) and the 'Teulade Report' (FR0001132F) (published in March 1999 and December 1999 respectively), this was the third report in preparation for a reform of retirement pensions.

More thorough analysis

In its evaluation of the current situation, the COR stresses the importance of the effects of the pension reforms begun in the 1990s, which, if current legislation is not amended, will lead to a steep fall in the 'substitution rate' (the relationship between pension and previous income from work) in the private sector, of around 20% on average. It laments the fact that the effects of the past reforms are little known and misunderstood, which has led to confused perspectives and exaggerated concerns about retirement pensions. Contrary to previous official reports, the COR's expresses its avowed willingness to reject any form of 'sensationalism' on this topic.

The report comprises a detailed analysis of the economic and demographic factors influencing the future of retirement pension schemes over the next 40 years. Unlike the previous two reports, the scenarios described (FR0107173F) include two new variables: labour productivity and the division of added value between work-derived and capital-derived income. The financial projections for 2040 point to the need for additional pension funding of about 4% of GDP, if there are no changes to legislation. The impact of a possible review of the pension reform measures taken by the Balladur administration in 1993 is also assessed.

Alongside this financial data, the COR examines the impact on retirement pensions of changes in the organisation of society, particularly the sequence of periods of work, leisure and lifelong learning. In its future work, the COR is planning to continue this rethink of how such periods in an individual's life can be linked more effectively.

Guidelines and proposals

The COR report's main guidelines and proposals are set out below.

Renewal and adapting the 'social contract between generations'

In terms of renewing and adapting the 'social contract between generations', three basic principles must be reaffirmed:

• 'pay-as-you-go' pensions (whereby the pensions of people currently in retirement are met from the contributions of those currently in employment) must remain the basis of a system based on inter-generational solidarity;

• the system must remain based on the link between work and pensions, even if this means incorporating some form of redistribution by granting non-contributory benefits; and

• the right to work is as important as the right to a retirement pension.

Complementary principles put forward by the COR are:

• ensuring the financial soundness of the retirement pension system;

• ensuring equal treatment and effort among contributors;

• granting greater leeway for individual choices; and

• affirming the right to information.

Immediate changes in the field of work

The COR advocates a proactive policy for employing older workers, to be enacted under the tripartite leadership of the state, the trade unions and the employers' associations. This policy should:

• alter the perceptions and practices of companies, central and local government departments and employees;

• limit the use of early retirement and encourage gradual progressive retirement;

• adapt jobs to fit an ageing workforce, by fostering lifelong learning and intervening in working conditions and work organisation, placing more value on the skills acquired by experienced workers; and

• create a favourable regulatory environment, though the option of earning a salary alongside a pension, and the elimination of age discrimination. This perspective, important both in relation to the needs of the labour market and retirement pension systems, involves a great deal of mobilisation and radical change in the representation and practices of public and private-sector actors. In the COR's view, such a commitment is not only necessary but is a prerequisite for lengthening the period during which pension contributions are paid.

Targets for pension levels and balancing instruments

The report highlights the possible combinations of, and relationships between, three important variables in attaining a given substitution rate for pensions: the level of contributions; the age at which the worker is due to stop work; and the level of pension. The COR advocates that amendments intended to guarantee the financial balance of the pensions system be very clearly publicised, unlike the strategy deployed in connection with the 1993 reform. It thus favours clearly stating the future level of retirement pensions (ie the substitution rate) in order to assuage people's anxieties.

Responding to citizens' expectations

In terms of equality and solidarity among pension contributors, the COR proposes that more weight be given to a job's degree of hardship, the ups and downs of career paths and inequalities between occupational categories, all the more so for employees who have paid contributions for a long time. It also favours offering more choice to individuals, for example by modifying reductions in pension entitlement for early retirement and increases in pension for postponed retirement, and by promoting gradual progressive retirement. Lastly, the report stresses that the right of access to information must be greatly improved.

With respect to the burning issue of the differences in contribution periods between schemes covering private and public sector employees, the COR examines the implications of a range of options without choosing any of them. It identifies a serious bone of contention between the members of the COR: the way in which equality between private sector employees and civil servants can be achieved in terms of the period of contributions required to grant entitlement to a full pension. The options are either to require everybody to pay contributions for 40 years or return to a 37.5-year period.

The COR strongly expresses its desire not to close the debate and its wish to defer the making of the most difficult decisions to collective bargaining and politicians. It thus leaves it up to the state and the social partners to solve issues such as level of pensions, the choice of measures to fund pensions and the establishment of a timetable for implementing them.

Reactions

MEDEF, which refused to take part in the COR's work, is still highly critical. Denis Kessler, the MEDEF vice-president, stated that 'this third report has nothing new to say. But the COR has done exactly what it was supposed to do, earn two years' breathing space so that any decision is postponed until after the elections.'

The trade unions that participated in the COR have welcomed the 'serious and thorough' study conducted. The diagnosis and the need for reform are now endorsed by all the participants. Nicole Notat, the general secretary of the French Democratic Confederation of Labour (Confédération française démocratique du travail, CFDT), feels that 'the COR has done serious work, but the question is, what are the various stakeholders, including the government, going to do with the findings?'

Jean-Christophe Le Duigou of the General Confederation of Labour (Confédération générale du travail, CGT) commented that the COR had provided 'a clear overview of the issues being discussed', which had 'not previously been identified'. He added that the COR had 'taken explicit positions on basic issues'. Mr Le Duigou feels that policy on age and work is 'the principal means of funding retirement pensions'.

The COR's union members, particularly CGT and CFDT, have pointed out that 'the COR is in no way a forum for negotiation'. The Unitary Union Federation (Fédération Syndicale Unitaire, FSU), concluded that the report is a 'toolkit for an ongoing debate'.

Commentary

The modus operandi adopted by the COR enabled a certain degree of consensus to be obtained, especially on the need to instigate a policy on age and work, and allowed the usual 'apocalyptic' discourse on the future of pensions to be avoided. Examining the various avenues of action while leaving the choices open enabled criticism from some trade unions to be sidestepped. However, the forthcoming phase of bargaining on the pensions issue is still extremely sensitive. The possible bringing into line of the contribution period for civil servants with that of private-sector employees, and the reform of the special schemes - in state-owned companies such as EDF-GDF (electricity and gas) and SNCF (railways) - are two particularly explosive issues in the context of an election campaign. The debate is set to continue beyond the 2002 parliamentary and presidential elections. (Annie Jolivet and Antoine Math, IRES)