Pension reform adopted

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A major law on pension reform was finally passed by the French parliament on 24 July 2003, after lengthy debate in both houses. Although the majority of the government's bill - which included changes agreed with a number of trade unions - was retained, many amendments were made. Opposition to the law remains strong among unions and the political opposition.

Debate on the government's pension reform bill (FR0305103F), which began in the National Assembly on 10 June 2003, lasted until 18 July, necessitating an extraordinary sitting of parliament. Passed by the National Assembly on 24 July and then by the Senate, the law was published in its final form (as law n°2003-775) on 21 August 2003.

Amendments made by parliament

Although the law's broad outlines have not been altered since an agreement on its content with some of the trade unions on 15 May 2003 (FR0306104F), it was still subject to a number of amendments, as follows.

  • Retirement of an employee at the employer's instigation. The age at which an employer can oblige an employee to retire will, as previously planned, be raised to 65, instead of the age at which the employee can claim a full pension. However it will be possible to depart from this rule and pension off an employee under the age of 65 (but over the age of 60) who is eligible to retire on a full pension if: the employee receives early retirement compensation; or an extended sector-level collective agreement providing for trade-offs for such retirement in terms of employment or vocational training has been reached prior to 1 January 2008. In the civil service, the retirement age limits have been made more flexible to enable each category of worker to obtain up to 2.5 years' extra pension entitlements.
  • Specific company contributions to early retirement. Company early retirement schemes will be subject to a contribution, as planned, but this will be paid into the Old Age Solidarity Fund (Fonds de solidarité vieillesse, FSV) (FR0212104F).
  • Purchase of contributions. Only missing annual pension contributions in respect of years spent studying for a degree, diploma or certificate-conferring course, up to a three-year ceiling, can be purchased. The sums paid for these purposes will be tax deductible.
  • Extra contributions for civil servants with children. As at present, women civil servants will receive a one-year pension contribution 'bonus' for every child born or adopted before 2004. Male civil servants will now also benefit from this entitlement if they stop working to look after the child. From 2004, as planned in the bill, the contribution bonus will be paid to both women and men, but will be equal to the periods when they are off work or working reduced hours for childcare purposes, up to a three-year ceiling. However, the law finally adopted provides that mothers who continue to work will receive a six-month contribution bonus per child born from 2004 onwards. Parents of children with severe disabilities who are raised at home will receive a contribution period bonus of up to a year.
  • Receiving both a pension and an income from employment. In the private sector, people can now both receive a pension and earn income from employment, as long as the wage earned plus the pension does not exceed the last wage earned before retirement. Retirees will be allowed to begin work for their former employer again, but only after a six-month period has elapsed. Retired civil servants can be re-employed in the civil service, but their wage may be no more than one-third of their pension. It will be possible for pensioners who reached the statutory retirement age pertinent to their last job before 2004 to receive both their whole pension and a wage.
  • Right of disclosure for pension-scheme members. The right for pension-scheme members to obtain an indicative preliminary estimate of their pension (ie basic plus supplementary pension) will be progressively extended from 59-year-olds to 55-year-olds. Such estimates will no longer be provided every five years but 'at various times'. A 'public interest organisation' will be responsible for the implementation of this process.
  • Retirement before the age of 60 for employees who began working between the ages of 14 and 16, and who have paid 40-42 years’ contributions. The final law is still somewhat vague on the criteria for access to this scheme, referring to a forthcoming decree. However, it suggests that periods of national (military) service may not be fully included in the calculation of the required contribution period, nor may periods during which the employee has not directly paid any contributions (eg periods of unemployment). This scheme will also be available to people with disabilities according to criteria to be set out in a decree.
  • Family leave. A new family solidarity leave (congé de solidarité familiale) scheme will enable employees to take three months' leave, renewable once, to be with a close relative through an illness. This replaces the previous 'end of life accompaniment leave' (congé d'accompagnement en fin de vie).

The law also lays the foundations of a genuine 'third pillar' of pension funding, based on employees' own savings. Until now, there have been only a few such pension funds targeted at special categories of employees and self-employed people, and some company supplementary schemes. The new law set up two retirement savings schemes, building on those established by the February 2001 'Fabius law' on employees savings schemes (FR0102129N), as follows:

  • it was originally planned to introduce a 'pension savings plan' (plan d’épargne pour la retraite, PER), which would have been collective and thus opened the way for pension funds. However, there will now instead be an individual 'personal pension savings plan' (plan d’épargne individuel pour la retraite, PEIR) which is an insurance contract enabling people to accumulate entitlement to a life-long annuity. The PEIR must be based on an agreement with an insurance company through a not-for-profit personal savings fund-holding association; and
  • a new 'voluntary partnership employee pension savings scheme' (plan partenarial d’épargne salariale volontaire pour la retraite, PPESVR) is to replace the 'voluntary partnership employee savings scheme' (Plan partenarial d'épargne salarial volontaire, PPESV) set up under the Fabius law. The period during which funds are locked in to the scheme - formerly 10 years under the PPESV - has been extended up to the retirement age of the person concerned. The pay-out from the scheme will be in the form of a life annuity (an option originally provided for in the Fabius law, but opposed vehemently within parliament and finally jettisoned), but lump-sum payments are also possible.

Reactions

Pleased with the pension reform law, the Movement of French Enterprises (Mouvement des entreprises de France, MEDEF) employers' organisation has now decided to appoint two representatives to the Pensions Stewardship Council (Conseil d’orientation des retraites, COR), although it had refused seats when this consultative body was set up in 2000 (FR0004159F, FR0107173F).

However, on the trade union side, the General Confederation of Labour (Confédération générale du travail, CGT), General Confederation of Labour-Force Ouvrière (Confédération générale du travail-Force Ouvrière, CGT-FO), National Federation of Independent Unions (Union nationale des syndicats autonomes, UNSA) and United Union Federation (Fédération syndicale unitaire, FSU) are still against the pension reform law.

Socialist deputies and senators brought the new legislation before the Constitutional Council (Conseil constitutionnel) on 28 July 2003. They feel that the law is damaging to the principle of equality, especially because it refers to collective bargaining the issue of how to take account in pensions a job’s degree of 'arduousness', and because it does not confer the same rights on men and women. On 14 August, the Constitutional Council overturned all the complaints raised, and validated the law. It was deemed in particular that the two-year increase in pension contributions to the general scheme per child granted by the new law to women only, serves to address existing inequalities (in 2001, women’s average period of pension contributions was 11 years less than men's, and their average pension more than a third lower - FR0209103F) The first secretary of the Socialist Party (Parti socialiste), François Hollande, has stressed that challenging the legislation is of major political and social significance and that consequently the law will be reviewed if the Left comes to government.

Negotiations on reforming the AGIRC (managerial staff) and ARRCO (blue- and white-collar workers) supplementary pension schemes in line with the new law began on 9 September 2003, and the social partners unanimously demanded that the government act quickly to publish the decrees applying the pension reform, especially the one relating to the early retirement of employees who began working at an early age (see above). This provision was to come into force on 1 January 2004, but the absence of a decree will prevent negotiations among the social partners from taking place and may postpone the date to 1 April 2004. Two matters are pending - criteria for access (and thus the number of beneficiaries), and the scheme’s cost. It is estimated that the measure might affect 270,000 people, according to the French Democratic Confederation of Labour (Confédération française démocratique du travail, CFDT) and cost in the region of EUR 600 million to EUR 700 million per year over a 10-year period. according to the French Confederation of Professional and Managerial Staff-General Confederation of Professional and Managerial Staff (Confédération française de l'encadrement-Confédération française des cadres, CFE-CGC). However, tens of thousands of people may be excluded if periods of unemployment and part of national service, and even a proportion of periods of sickness, are not included in the calculation of the contribution period required for entitlement to early retirement. This stance adopted by the Ministry of Social Affairs is under challenge from the unions. Moreover, CGT and CGT-FO have stated that the scheme’s funding should not be fully covered by the supplementary pension funds.

Commentary

The 116 Articles of the voluminous new pension reform law leave a large number of points to be dealt with by decrees. Furthermore, in terms of pension savings, the effect of the law will only become fully clear when the various trade-offs related to tax incentives emerge in the 2004 state budget bill. This delay greatly complicates the AGIRC-ARRCO negotiations, not only over the contribution period, retirement age and funding for the law's new minimum pension level worth 85% of the SMIC minimum wage, but also child benefits and survivor’s pension rights. Moreover, meetings between employers and unions are set to start in autumn 2003 with a view to reaching an agreement on keeping older employees in the workforce, and the inclusion of the arduousness of the work as a factor in the retirement age for particular types of job. Changes in current practices in these areas represent an important issue, and will in part influence the effectiveness of the reform. (Annie Jolivet, IRES)

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