Reform of state pension system despite strong opposition

The French government’s reform of the state pension system is now law and the age at which workers will be entitled to their state pension has increased, but with exceptions for specific or disadvantaged groups of people. Those who began working at an early age are still entitled to retire early. With these and other changes, the government hopes to rebalance the public finances by 2018. The government is also keen to close the gap between public and private sector pensions.

New law adopted

Legislation proposing an increase in the age at which the state pension is payable (FR1007021I) was finally adopted by the French parliament on 27 October 2010. The new law (in French, 700Kb PDF) (Law 2010-1330 of 9 November 2010) contains two main measures affecting workers:

• an increase in the age at which individuals can retire (from 60 to 62 years);

• an increase from 65 to 67 in the age at which individuals will be entitled to the full state pension.

The strikes that partially paralysed the country (the blockage of oil refineries and public transport), the strong opposition of all trade unions and eight days of national trade union demonstrations involving, according to some sources, up to three million people, all failed to prevent the legislation from being passed.

Retirement age raised to 62

As explained in a circular (in French) from the Ministry of Work, Employment and Health, the starting age for retirement, previously fixed at 60, has been increased to 62 in order to preserve the viability of the current retirement system. This increase applies to workers in both the public and private sectors born after 1 January 1956. For those workers born between 1 July 1951 and 31 December 1955, the age at which they will begin to receive their pension progressively increases from 1 July 2011. This staging of the increase reflects the government’s reluctance to cause difficulties for those due to retire in the next few years. The reform does not affect people born before 1 July 1951.

As in the past, individuals will still be able to retire earlier than 62 if they began working before they were 18. The new law will increase the number of years’ service required by individuals to receive the full pension (calculated on a quarterly basis and rising from 160 to 164 quarters in 2012). This means that people who started work before their 18th birthday can still retire at the age of 56, provided they have worked for a total of 164 quarters (40 years) and thus began working at 16. The so-called ‘long career’ status, introduced in 2003, has not been repealed and has even been extended to cover civil servants.

The new law also maintains the specific rule for those who have worked in an environment with asbestos, even if they were not exposed to the fibres. The ‘asbestos early retirement scheme’ allows workers in this category to retire at the age of 60 with the automatic right to receive a full state pension. The reform also creates the option for workers with a permanent disability to retire early (the required level of incapacity will be fixed by a future decree).

Qualifying age for full state pension increased to 67

The second key measure contained in the new law is the increase from 65 to 67 for the age at which individuals will be entitled to receive a full state pension, regardless of the amount of paid contributions.

However, certain groups of people will still be able to qualify for a full state pension at 65, irrespective of the duration of their contributions. These groups are:

• people with a disability;

• those who stopped working in order to support a disabled family member;

• parents of disabled children;

• workers who qualify for ‘asbestos pre-retirement’;

• individuals born between 1 July 1951 and 31 December 1955;

• parents with at least three children who stopped or reduced their employment to devote time to the education of one or more of their children.

Measures supporting employment of older workers and women

Two measures contained in the new legislation are specifically aimed at encouraging the employment of older workers. The first will provide financial aid to companies employing workers aged 55 or over. The second will allow companies that run mentoring programmes for younger workers to offset the costs of this against their training budget which, by law, they are already obliged to have for professional training.

Another measure seeks to ensure that women will no longer be penalised for taking maternity leave: unlike in the previous arrangement, the allowances paid to women while on maternity leave will now count towards years of pension contributions.

Convergence between private and public sectors

Various measures contained in the new law attempt to achieve convergence between the rules governing private sector workers and those governing civil servants. Particularly noteworthy are the following:

• the increase by two years in the retirement age for civil servants, according to their occupation (from 50 to 52, 53 to 55, 55 to 57, etc);

• a gradual reduction in the gap between the contribution rates of civil servants and other workers (currently 7.85% and 10.55% of their wages, respectively);

• the harmonisation of the conditions of granting a minimum pension, allotted to people who have not contributed enough to obtain a pension calculated on their pay;

• an extension of the ‘long careers’ scheme to the civil service.

Despite these measures, there are still major differences between the two sets of regulations such as variations in the pensionable age and differences between the amounts of the final pension received. Private sector workers receive a pension which is, on average, 65% of their net salary (based on the salary of their best 25 years), whereas civil servants receive a pension which equals 75% of their salary (based on their last six months).

Achieving a balance in finances by 2018

The reform aims to balance the government’s finances by 2018.

Other measures are due to be introduced in order to increase the pension system’s revenue such as the additional taxation of high incomes; in particular on stock options or on the additional payments made by an employer (retraites chapeaux) to high-earning employees to offset the legally imposed financial limits on a person’s pensionable income (expressed in law as a percentage of their final salary).

The tax due from certain capital revenue will increase and the government will decide to reduce or cut some of the so-called ‘social niches’; for example, reductions in social security payments available for specific situations such as for those working at home or for those employing a childminder at home.

All these measures will ease the strain on the public finances and increase social security revenue.

The new law also introduces a series of measures that aim to secure the future of the pension system. A ‘pension system steering committee’ will be created with a task of issuing an annual report on:

• the financial situation of the various pension regimes;

• the conditions required to ensure a financial balance by 2018;

• future projections of the system beyond this date.

The committee will propose measures for redressing the finances if it considers the stability of the system to be in jeopardy.

Moreover, from 2013, the committee will be responsible for undertaking a national exercise aimed at producing greater synergy between the various retirement regimes. It will oversee the transition from a system of ‘annuities’ to one of ‘notional accounts’ similar to the Swedish model where workers receive ‘retirement points’ based on their income, thus replacing the ‘quarterly’ system.

In 2018, an assessment will be made to allow the government to take stock of the situation in order to maintain a financial balance beyond this date.

Trade union reaction

Following the decision of the Constitutional Court (Conseil Constitutionnel) approving the pension reform, various trade unions expressed their concerns about the changes introduced by the law.

On behalf of the General Confederation of Labour (CGT), the General Confederation of Labour – Force Ouvrière (CGT-FO) said that the law was still ‘unfair, ineffective and unacceptable’ and that the rise of the retirement age to 62 will not solve the financial situation of the retirement funds.

The French Democratic Confederation of Labour (CFDT) focused on the inequity and unfair nature of the law concerning workers who started to work early and those with difficult working conditions. CFDT has obtained from the government a promise of a renewed national debate in 2013 about the future of the pension system.

The French Christian Workers’ Confederation (CFTC) and the General Confederation of Management – General Confederation of Professional and Managerial Staff (CFE-CGC) refused to apply for a permit for another demonstration (unlike CGT, CGT-FO and CFDT) after the official publication of the law, but said that it would not resolve the financial problems and that this topic is still open for debate.

Commentary

These reforms can only be successful if older workers continue working, an outcome which will require a profound change in attitudes (especially of those responsible for recruiting workers and the workers themselves) and for young people to be able to enter working life. The Minister of Labour, Xavier Bertrand, recently confirmed that the employment of young people is a priority for the government and that it hopes to develop specifically targeted part-time placements for 800,000 young people.

Sandrine Jean, Human and Employment Research Agency (HERA)