Prime Minister announces blueprint for pensions reform

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On 21 March 2000, Lionel Jospin, the French Prime Minister, made a long-awaited and much postponed announcement on pensions reform. After two years punctuated by several contradictory official reports, each of which diagnosed the problem and put forward recommendations, Mr Jospin announced the blueprint for this reform as teachers demonstrated and Finance Ministry civil servants pursued industrial action. The main and most controversial option relates to the scheme for civil servants working for central government, local authorities and in the health service. The plan is to raise the qualification period for retirement on a full pension to 40 years (rather than the present 37.5). Several civil service unions have demonstrated their hostility to the extension of the qualification period. The MEDEF employers' confederation, on the other hand, has criticised the entire plan, deeming it completely inappropriate to the issues of the future.

A government announcement on pensions reform has been awaited for some months, having been the subject of much debate and several contradictory major studies in the past few years (FR0001132F and FR9904174F). By late March 2000, after lengthy delays as he waited apparently for the right moment to reveal the outlines of his pension reform, Prime Minister Lionel Jospin could hardly drag out this politically-sensitive issue any longer. On 21 March, he announced the main lines of his reform during a televised interview, against a background of strikes throughout the state education system (FR0004153N) and the taxation division of the Ministry of Finance (FR0004157F). This context probably accounted for a perceived degree of "prudence" in both style and substance, that drew criticism from many quarters.

Mr Jospin began by stating the need to guarantee and consolidate the future of the "pay-as-you-go" (répartition) system (whereby those currently in employment pay for the pensions of those currently in retirement), seen as the basis of the social partnership established in France after the Second World War. In particular, he dismissed the idea that pension funds were to be created - whereby individual workers would save for their own retirement - while leaving open the option of developing other mechanisms for collective funding of pensions, which would take the form of collectively agreed "instruments for long-term savings" aimed at topping up the pay-as-you-go pension, and which may be based on the recent "Balligand and de Foucauld report" on employee savings schemes. However, Mr Jospin did confirm the pivotal role in strengthening the pay-as-you-go scheme of the reserve fund set up in 1999 (FR9812147F), which should accumulate FRF 1,000 billion by 2020. Currently worth FRF 20 billion, the fund is provisionally managed by the Fund for Old Age Solidarity (Fonds de Solidarité Vieillesse). In order to accrue the projected FRF 1,000 billion, assuming that there is a steady reduction in the unemployment rate to around 4.5%, the fund should be swelled by: the surplus from the National Old-Age Insurance Fund for Wage Earners (Caisse nationale d'assurance vieillesse des travailleurs salariés, CNAVTS), amounting to FRF 100 billion; FRF 400 billion from the company social solidarity contribution (Contribution sociale de solidarité des sociétés); FRF 150 billion taken from income taxes levied on property and financial assets; and FRF 330 billion in forecast income from investing the reserve fund's resources. In 2001, the government is to appoint a new fund-managing body.

Downward harmonisation of public and private pension schemes

The Prime Minister's most controversial proposal concerns civil service employees, while the other special schemes, of which there are around 100 (those for SNCF rail workers, RATP Paris transport workers, miners, seafarers, etc) will remain unaffected. The proposal is to extend the qualification period for a full pension from 37.5 to 40 years' worth of contributions. Thus, the civil servants' scheme is to be brought into line with that of private sector workers, and this is the planned basis of discussion in scheduled negotiations with the social partners. As a trade-off, "a bonus element" for civil servants will be included in the calculation of the pension. In the case of private sector workers, for whom the 1999 Charpin report advocated extending the qualifying contribution period to 42.5 years (FR9903168N), greater flexibility in the choice of retirement age is preferred by the Prime Minister, in return for a review of the financial penalties incurred by early retirement (currently standing at a reduction in entitlement of 10% per year prior to statutory retirement age). Moreover, a rise in pension levels for private sector employees is planned. These have been falling since the 1993 "Balladur" laws (and will carry on falling) as a consequence of pensions now being linked to the consumer prices index rather than being linked to wages, and the steady extension of the qualification period to 40 years. It will be left to the social partners to decide on the ways in which this is to be implemented in practice.

Finally, following the example of several other countries, a pensions steering group has been established to monitor the financial equilibrium of the system and solidarity between the schemes. The group will be composed of representatives of employers and trade unions, parliamentarians and other leading qualified figures, and is to be set up over the next two months.

Rejection by main civil service unions and criticism from employers

The trade unions have generally publicly expressed their satisfaction regarding the Prime Minister's determination to strengthen the "pay-as-you-go" system and not to favour pension funds. However, CGT, CGT-FO and FSU, which are the majority unions among civil service staff in central government, local authorities and hospitals, dismissed en masse the proposal for negotiations on raising the qualification period for civil servants to 40 years, and launched a mobilisation call to civil servants. CFDT felt that all the proposals were over-cautious and too vague, particularly the refusal to modify the special schemes. However, CFE-CGC gave its full approval to Mr Jospin's blueprint. Moreover, CFTC had little criticism to make, other than reiterating the union's long-standing refusal to fund the reserve scheme from the social security surplus.

Employers are adamant in their opposition to the general direction of the announced reform. MEDEF, the central employers' confederation, and CGPME, representing small and medium-sized firms, have criticised the "timidity" of the choices on offer, particularly the fact that the issue of equality of treatment for civil servants and private sector employees was not dealt with. MEDEF has continued to condemn the Prime Minister's firm refusal to create pension funds as a solution to the future imbalance in pension scheme financing, and the "illusory nature" of the reserve fund.

Commentary

While Lionel Jospin is banking on negotiation to encourage civil service unions to agree to a longer contribution period, the state as an employer can expect to have to overcome the collective resistance of the main civil service unions on this issue. In the private sector, the stand off with MEDEF over top-up pensions has already started. It is the level of top-up pensions in the private sector that has fallen most obviously. In its current plan for a "new social constitution" (FR0002143F), MEDEF has unveiled its plans on this issue. It is proposing an individualised system, allowing each contributor the option of early retirement. The qualification period necessary to obtain a full pension would be calculated on the basis of average life expectancy, which is the same thing as increasing the period to 41, 42 or 43 years, well beyond the statutory retirement age of 60. MEDEF, however, is excluding any increase in employers' contributions. As no timetable has been fixed, the reform is dependent on goodwill and the balance of power between employers and unions, in a context in which employers are again on the offensive and the state as an employer faces industrial conflict. (Catherine Sauviat, IRES)

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