Government forges ahead with pensions reform plans

Following discussions with the social partners, in late April 2008 the French government announced reforms of the state pensions system, including an increase in the number of years of contributions required for a full pension, from 40 to 41 years. This move is strongly opposed by the trade unions. In June, the government proposed a series of measures promoting the employment of older people, to accompany the changes to the pension scheme.

In March 2008, the government launched a scheduled process of discussions with the social partners about pension reform (FR0703029I), known as Rendez-vous 2008. The 2003 Fillon pension reform provided for adjustments to the pensions system every four years based on changing demographic, economic and social conditions. The process started on 27 March with a series of bilateral discussions between the Minister of Labour, Social Relations, Family and Solidarity, Xavier Bertrand, five trade union confederations and three employer organisations. During a plenary session of talks, on 28 April, Mr Bertrand presented a working document on the government’s proposals. Then, on 26 June, the Minister of Economy, Industry and Employment, Christine Lagarde, Minister Bertrand and the Secretary of State for Employment, Laurent Wauquiez, met with representatives of the five trade union confederations and three employer organisations in order to present a set of main measures (in French, 285 Kb PDF) on older people’s employment that the government had decided after consultations on the issue.

Measures concerning pensions

Following its discussions with the social partners, the government has decided the following measures related to state pensions.

• The number of contribution years required for a full retirement pension (currently 40 years) will increase by three months a year beginning in 2009, in order to reach 41 years in 2012. From the beginning of the discussions with the social partners, the government was very firm on this point, which it said was not up for negotiation.

• Early retirement for workers who have had long careers (FR0312102N) is maintained.

• A minimum pension of 85% of the national minimum wage (Salaire minimum interprofessionnel de croissance, SMIC) for a full career on the SMIC is on target for 2012. Moreover, the minimum old-age allowance (Minimum vieillesse) will be increased by 5% a year up to 2012.

• It will be possible to increase pension contributions thanks to a drop of one percentage point in unemployment insurance contributions by 2012.

• Increased pensions in respect of children, which are non-contributory benefits, will be paid for by the Family Allowance Funds (Caisses d’allocations familiales).

• Survivors’ pension rates will gradually be increased to 56% of the amount of the deceased’s pension in January 2009, then 58% to reach 60% in January 2011.

• Indexation of pensions to prices is maintained. Pensions will, however, be reviewed in April (rather than January), in order to have better economic indicators concerning inflation.

Although French President Nicolas Sarkozy announced in February that a bill would be submitted before the end of the first half of 2008, it is now clear that the pension reform will either be adopted by decree, or in the framework of the 2009 law on Social security funding or the 2009 Budget law.

Priority given to employment of older people

A tripartite working group on older people was created on 15 May 2008. The Minister of Labour wants to make this issue ‘the heart of discussions with the unions and employers’.

Under the government’s plans, companies and economic sectors that have not signed collective agreements on age management and the employment of older people by 31 December 2009 will have to pay additional pension contributions from 2010 onwards. Agreements on this subject must include minimum requirements, namely a quantitative target for increasing the number of 55–64 year-olds in the workforce.

In order to promote keeping older people in employment, retirement age limits and employer-instigated retirement will be abolished. Moreover, to limit early retirement, the tax and social security contributions levied on compensation for terminating employment contracts will be made the same for terminations by the employer and terminations by mutual agreement. However, the specific contributions system regarding compensation for staff retiring early without consultation (until 2009) and for early retirement will be retained.

In order to encourage older people to continue working after they have reached the age of 60 years, the government has put forward the following measures.

• From 1 January 2009, combining employment and a retirement pension (cumul emploi-retraite) will be possible from the age of 60 years for those who have a full contributions record, and from the age of 65 years for everyone. Current income ceilings and the six-month waiting period if an employee continues to work for the same employer will be abolished.

• Increases in pensions for employees who choose to work longer (surcote) will rise from January 2009 onwards – that is, the pension of an employee who is aged 60 years, has already contributed for 40 years and decides to work for an additional two years. The increase in pensions amounts to 10% for the rest of the employee’s life. This increase will now also apply to the least well-off pensioners (whose pensions are topped up to the minimum contributory pension).

In order to encourage older unemployed people to return to employment, the age limit for exemption from the duty on jobseekers to seek employment (dispense de recherche d’emploi, DRE) will gradually be increased: to 58 years from 1 January 2009, 59 years from 1 January 2010 and 60 years from 1 January 2011. Jobseekers who already have a DRE on 31 December 2008 will not be concerned.

Social partner reactions

Firm trade union opposition to reform plans

The trade unions presented a united front on the government’s plans, in spite of differing approaches. They are against increasing the number of contribution years required for a full pension from 2009. The General Confederation of Labour (Confédération générale du travail, CGT) and the General Confederation of Labour – Force ouvrière (Confédération générale du travail – Force ouvrière, CGT-FO) contest the very principle of increasing the contribution record required, as do the United Union Federation (Fédération syndicale unitaire, FSU) and the Independent Union – Solidarity, Unity, Democracy (Union syndicale – Solidaires, Unitaires, Démocratiques, SUD). The French Democratic Confederation of Labour (Confédération française du travail, CFDT), the French Confederation of Professional and Managerial Staff – General Confederation of Professional and Managerial Staff (Confédération française de l’encadrement – Confédération générale des cadres, CFE-CGC) and the French Christian Workers’ Confederation (Confédération française des travailleurs chrétiens, CFTC) consider that an increase can only be envisaged after the employment of older people is genuinely improved. The General Secretary of CFDT, François Chérèque, reminded the government that – according to the 2003 ‘Fillon’ pension reform law (FR0309103F) – any increase in the number of contribution years depended in particular on improving older people’s employment. Regardless of their position, the trade unions consider that this measure is symbolic and will not resolve the problem of pension scheme funding.

Moreover, all of the trade unions had insisted on the need to review the method of indexing pensions in order to stop the erosion of pensions. Pensions and the pay rates on which they are calculated have been indexed to prices – not pay – since 1993 for private employees, while pensions have been indexed to prices since 2003 for civil servants. Other methods of funding pensions have been proposed, namely contributions deducted from stock options, financial participation and profit-sharing, as well as investment income. None of these demands have been incorporated in the government’s plans. The president of the National Old-Age Insurance Fund (Caisse nationale d’assurance vieillesse), Danièle Karniewicz of CFE-CGC, considers that ‘Rendez-vous 2008 was only a most limited exercise in implementing the 2003 Fillon law’. The General Secretary of CGT, Bernard Thibault, stated that ‘there is more than a difference between being seen and being heard’.

Trade union mobilisation

This opposition led to three days of trade union mobilisation on 29 March, 16 April and 22 May 2008. The five major trade union confederations and their respective pensioners’ organisations called a demonstration on 22 May. They were joined by FSU, the National Federation of Independent Unions (Union nationale des syndicats autonomes, UNSA) and SUD. Some 700,000 people demonstrated in 153 towns across the country, according to CGT – 300,000 people in 126 towns, according to official figures.

The trade unions question the effectiveness of the measures on older workers that were presented on 26 June. CFDT’s General Secretary, François Chérèque, considers that liberalising the possibility of combining employment and receipt of a pension poses a problem. Mr Chérèque argues that companies will be able to offer lower pay, but the employees concerned will still have a higher income on account of their pension.

Employers support reform plans

As for employers, the General Confederation of Small and Medium-sized Enterprises (Confédération générale des petites et moyennes entreprises, CGPME) believes that the government’s proposals on pensions are balanced. The Craftwork Employers’ Association (Union professionnelle artisanale, UPA) has ‘not noted any major disagreement’. The Movement of French Enterprises (Mouvement des entreprises de France, MEDEF) welcomes the increase in the number of contribution years, which is ‘a really essential minimum’. On 20 May, MEDEF’s President, Laurence Parisot, went further when she called for the minimum qualifying age for a full pension to be increased to 63.5 years (for the time being, it remains at 60 years). However, MEDEF is opposed to reducing unemployment insurance contributions to the benefit of pension contributions. The organisation argues that ‘it is not up to the government to decide about this – it is the remit of the social partners’.

As for the employment of older people, the employer organisations are relieved to have ‘avoided quotas’. MEDEF opposed financial penalties on employers not meeting targets for the employment of older workers and considers that imposing ‘penalties from 2010 onwards is rather short a deadline to start bargaining and achieve results’. CGPME thinks that ‘the deadline is short, but it goes in the direction of speeding up the reforms we want’.

Commentary

The measures that have been announced seem incapable of balancing the books of the general pensions scheme (concerning private sector employees) by 2012 – the objective which was put forward by Prime Minister François Fillon in September 2007. The deficit is due to increase slightly to reach €11 billion in 2012. The only measures announced that may help stabilise the deficit at €5 billion are the transfer of unemployment contributions to pension contributions and also the funding of family-related pensions benefits by the National Family Allowance Fund (Caisse nationale d’allocations familiales, CNAF).

The measures that have been presented will not stop the erosion of the relative level of pensions. The replacement rate (the proportion of former pay represented by pensions) already declined greatly between 1990 and 2006. The French Economic Observatory (Observatoire français des conjonctures économiques, OFCE) thinks that by 2050 the rate could drop to as low as 58% for non-executive staff and 38% for executives.

The government has made no proposals on the pensions of workers who have had arduous working conditions, in spite of the almost certain failure of trade union–employer negotiations on the issue (FR0711029I).

Annie Jolivet, Institute for Economic and Social Research (IRES)