“Pension reform is essential when we compare ourselves in Europe”, said President Emmanuel Macron at the end of January. Since the presentation of the bill, comparisons with such and such a European country have regularly arisen in the debate, whether it is a question of justifying the reform or, on the contrary, of criticizing it.
But is it really relevant to draw a parallel between the British New State Pension, based on a high dose of capitalization, and France, which favors pay-as-you-go? The Baltics, more than a third of whose retirement resources are earned income (as retirees), and the French, who work the least in Europe once retired?
Different pension schemes, greater or lesser capitalization, differences in the legal retirement age, the real age or pension levels: the contrasts from one country to another are so strong that it becomes risky to take only one element to compare the countries.
A pay-as-you-go model, or not
At the heart of the spirit of the pay-as-you-go pension system is the idea that working people contribute for previous generations. Conversely, capitalization involves contributing only for oneself (or for one’s company) and receiving one’s nest egg once retired.
All European countries have a pay-as-you-go pension system… mixed with capitalization to varying degrees. In the United Kingdom and the Netherlands, the sums managed by pension funds or private pension funds account for more than half of total pension expenditure.
The only exception to the breakthrough in capitalization, France operates entirely on a pay-as-you-go basis, both for its basic scheme and for the supplementary schemes – which does not, of course, prevent you from building up your own savings for your retirement. This principle is not called into question by the reform proposed by the government.
Another difference: in the United Kingdom and the Netherlands, there is a basic flat rate, a minimum amount paid to pensioners, regardless of their salary level. Although this mechanism is highly redistributive in principle, the flat rate is relatively low compared to the standard of living: it represented 830 euros for a British pensioner and 1,300 euros for a Dutchman. In all the other countries, which base the compulsory system on wages, pension levels vary enormously: between a third of the old wage in the Baltic countries and 90% in Hungary or Portugal.
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