France: Agreement signed to protect compulsory supplementary pension schemes

In France, two compulsory supplementary pension schemes managed by the social partners are facing financial difficulties. The social partners have signed an agreement to protect the schemes. The agreement introduces a bonus–penalty system to encourage employees to retire later.


In France, employees are covered by a basic pension scheme, which is managed on a pay-as-you-go basis as part of the social security system, as well as two compulsory supplementary pension schemes that are also managed on a pay-as-you-go basis by the social partners. On 30 October 2015, a national interprofessional agreement to protect the two supplementary pension schemes was finalised by the General Association of Pension Institutions Executives (Agirc) and the Association for the Supplemental Pension Plan for Employees (Arrco).

The agreement was signed by employers' and and unions' representatives. The three signatories that represent employers at national level were: the Movement of French Enterprises (MEDEF); the Confederation of Small and Medium-sized Enterprises (CGPME); and the Craftwork Employers’ Association (UPA), which represents self-employed craft workers. Three of the five organisations that represent the trade unions signed the agreement: the French Democratic Confederation of Labour (CFDT); the French Christian Workers’ Confederation (CFTC); and the French Confederation of Professional and Managerial Staff – General Confederation of Professional and Managerial Staff (CFE-CGC).

The agreement sets out technical measures intended to make savings and also aims to encourage employees to retire later by introducing a bonus–penalty mechanism. This is expected to save approximately €6 billion by 2020. The agreement also paves the way for the merger of the two schemes to create a new, unified system. This will enable the social partners to change the length of time employees must contribute if they wish to claim their full pension without any reductions.

The bonus–penalty system

It is the first time the social partners have agreed to provisions linked to age at retirement to balance the accounts for supplementary pensions paid to employees in the private sector. From 2019, policy-holders born after 1957 who claim the basic pension provided by the social security system at the full rate (50%) as soon as they qualify under the old rules will find that their total supplementary pension is subject to a ‘solidarity coefficient’. This will reduce their total pension by 10% for three years until they reach the age of 67. They will avoid the reduction if they continue to work for four additional quarterly periods. Employees who work for at least two years after the date on which they qualify for a full pension will find that their full supplementary pension is subject to ‘increase coefficients’ for the first year's pension. The increase is 10% for employees who work for two years longer, 20% for those who continue to work for three years and 30% for those who continue to work for four years.

Take, for example, a 62-year-old employee with a final annual salary of €75,000 who meets all the conditions to draw their full pension from the social security system. If they decide to retire, they will receive €34,148 per year for three years, instead of €35,988 without any deductions. This amounts to a reduction of €1,840 a year, a total loss of €5,520. If they delay retirement until 63, there will be no reduction. Retirement at age 64 will mean an increased pension of €41,550 in the first year; at age 65, €45,504; at age 66, €49,628, a bonus of €6,394.

A unified supplementary scheme

At present, all employees contribute to the Arrco supplementary pension scheme. But anyone in a management role must also contribute to the Agirc supplementary scheme. These two schemes will be merged to form a unified supplementary pension scheme managed by the social partners, according to the pay-as-you-go and points system. Policy-holders earn pension points according to the number of quarterly contributions that they pay.

From 2016, the signatories plan to negotiate a new national interprofessional agreement to be signed no later than 1 January 2018. It will pave the way for the introduction of the unified supplementary pension scheme from 1 January 2019. The agreement signed in October 2015 already sets out two pay levels for calculating deduction of contributions. For pay up to €3,170, the pension contribution will be 6.20% of gross salary; this will rise to 17% for salaries ranging from €3,170 to €25,360. The employee will pay 40% of contributions and the employer will pay 60%. From 2019, the signatories will meet every four years to prepare a strategic plan for the unified scheme and set targets to keep it on course.

Reaction of the social partners

MEDEF said in a press release that this agreement shows that social dialogue, if managed responsibly, makes it possible to develop innovative solutions and bring about structural reforms (in French). The announcement added: ‘This agreement enables us to create the first flexible pension scheme.’

However, an announcement from the CGPME said the agreement has made it possible ‘to save supplementary pensions for the time being’ but added that it was more of a temporary solution than a real reform (in French); ‘sooner or later, we really will have to agree to work for longer,’ said the statement.

The UPA announced that it was satisfied with this 'result of responsible dialogue' (in French), adding: ‘The negotiations showed that social dialogue can lead to sound interprofessional agreements.’

The signatory trade union organisations feel that this last attempt at negotiations has proved successful. The CFDT statement said: ‘If nothing had been done, within a few years, it would have been impossible to pay pensions at their current levels.’ It added that while the additional pensions paid by the supplementary schemes represent one-third of the pension of a worker or employee, they account for up to 6% of an executive’s pension.

Non-signatories such as the General Confederation of Labour (CGT) were more critical. The CGT Secretary General said that employees would bear the brunt once again, contributing €5.7 billion to the fund while the employers would contribute €300 million. The union confederation Workers’ Force (FO) fear that the negotiated measures will weigh heavily on other branches of the social security system (in French). Philippe Pihet, FO Confederal Secretary (pensions sector), said in an interview with newspaper Les Echos: ‘Older people who have to claim their pension one year later will be unemployed for another year [which will impact on the unemployment insurance scheme], unless they take sick leave, and this will have a negative effect on social security and life insurance companies.’


The reform of the supplementary pension schemes has demonstrated the social partners’ ability to go beyond the usual, simple adjustment measures to introduce more extensive structural changes, such as the merger of the two schemes and changing the pension entitlement age. They will now be able to ‘control’ the pension system by adjusting the bonus or penalty, which could become more of a deterrent or incentive, depending on financial developments affecting the scheme and how workers react.

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