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Bruno Cavalier
Chief Economist at ODDO BHF

Or, if it does, it will not be in the form and according to the timeframe favoured by the French government. Officially, the goal is to create a universal pension system that will eventually replace the many existing regimes. There would be a gain in transparency (improved management) and equity (disappearance of socalled “special regimes”). There would inevitably be losers. A year after the irruption of the “Yellow Vests” movement, it is hard to imagine Emmanuel Macron taking the risk of a social crisis durably blocking the country. The reform will be postponed, amended or shaped by concessions to those with the greatest capacity for social disruption.

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As the French pension system is based on the principle that contributions from working people are used to pay for current pensions, it is impossible to address this subject without including some demographic considerations. In the early 1980s, there were 3 contributors for every pensioner; a ratio which has since fallen to 1.7 and is forecast to reach 1.5 by 2040. The later entry of young people into working life and, above all, the fact that people are living longer have upended the very foundations of the pay-as-yougo system. According to the Conseil d’Orientation des Retraites (France’s Pension Guidance Council), the life expectancy of people who had reached 60 years of age in 2015 was 27.4 for women and 22.9 for men, i.e. +1.0 and +1.5 years in one decade. The projections are for a gain of 1.2 years for women and 1.5 for men on average for each decade until 2060 (chart lhs). If one wants to preserve pension levels without increasing the amount of contributions, the ratio of contributors to pensioners must somehow be increased, either by boosting the employment rate or by pushing back the retirement age. This is the basic starting point. The effective age of retirement, duration and amount of contributions, pension levels, these are some of the key parameters that must be factored in when considering the issue of pension systems.

In France, the legal age of entitlement to a retirement pension, possibly with a discount where the contribution period is not reached, is 62 years. The effective age is slightly higher in the private sector, but much lower in the public sector (chart rhs). The trend is slightly upward due to previous pension reforms voted in 1993, 2003 and 2010. The replacement rate, defined as the median income of pensioners in relation to the income of the population aged 50-59, is 67%, compared to an EU average of 61%. Put simply, the French pension system is more expensive than that of other countries. According to Eurostat, pension spending represented 12.8% of GDP, on average, in the EU in 2015, but 15% in France, which is topped in this domain by just two other countries Italy (16.5%) and Greece (17.8%).

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