Posted Sep 12, 2022, 3:40 PMUpdated on Sep 13, 2022 at 8:23 am
The French pension system is benefiting from an unexpected improvement this year, but it is set to be in deficit over the next twenty-five, warns the Pensions Orientation Council (COR) in a report sent to its members on Monday, which must adopt it on Wednesday.
Initially expected this summer, the analyzes of this independent body promise to fuel political debate at a time when the government has promised to put pension reform back on the job.
In 2021, the pension system has a surplus of nearly 900 million euros, we can read in the COR report to which “Les Echos” had access. A “clear improvement” compared to 2020, marked by the Covid crisis, which saw the deficit plunge to 18 billion euros (0.8 point of GDP).
Dynamic then deterioration
Last year, the COR predicted that the system would remain in the red but its financing benefited from the rebound in economic activity, and especially from the creation of salaried jobs, which increased revenues. This good momentum should continue in 2022. The system should experience a slight surplus of 3.2 billion euros this year, according to the COR, or 0.1 point of GDP.
The system should however fall back into the red thereafter. “From 2022 to 2032, the situation of the pension system would deteriorate with a deficit ranging from -0.5 point of GDP to -0.8 point of GDP depending on the agreement and the scenario adopted”, estimates the COR.
Review of assumptions
The deficit should therefore be between 7.5 and 10 billion euros in 2027 (0.3 to 0.4 point of GDP) to climb between 12.5 billion and 20 billion by 2032 (0.5 to 0.8 points of GDP). The deficits would be persistent over the next twenty-five years, even if the situation would improve over the long term.
To achieve its financial projections, the COR has updated its economic and demographic assumptions compared to previous years. They are generally more unfavorable in the long term.
In particular, the experts have revised downwards the scenarios for the evolution of productivity gains at work, a subject hotly debated at the time of the digital revolution. The COR has also corrected downwards its assumptions on the evolution of fertility and gains in life expectancy based on INSEE projections.
Government step by step
The Council does not comment on the advisability of a pension reform, referring to a political choice. For now, the government is moving slowly. During the presidential campaign, Emmanuel Macron had planned to raise the retirement age from 62 to 65, before opening the door to a shift to 64.
Since then, the government has remained discreet about its intentions, in the face of unions remonstrated against retirement at 65 and employers still in favor of reform, but eager to move forward more quickly on the reform of unemployment insurance in the time of labor shortages than on that of pensions, which is likely to provoke social unrest.
“The pension reform is necessary” because “the pension system is not financially balanced”, reaffirmed the Minister of Labor, Olivier Dussopt, Monday in an interview with “Point”. Notable openness, the minister is careful, however, to decide on the terms (increase in the legal age of departure or the duration of contribution, pace of implementation). The social partners will be invited on September 19 to “an exchange” on the COR report to relaunch the project.
Emmanuel Macron seems determined to maintain his timetable, namely the entry into force of the first measures in the summer of 2023. Sources close to the Head of State do not rule out age measures from the 2023 Security budget social, again leaving the game open between legal age and contribution period.
The objectives of the government in question
The whole difficulty for the executive is to meet its deficit reduction objectives, knowing that pensions weigh very heavily in the budgetary equation.
The COR rejects “the idea of an uncontrolled dynamic of pension spending”. On the other hand, he notes that the rate of spontaneous evolution of pension expenditure “does not seem compatible” with the objectives over several years displayed by the government in its stability program unveiled in July.
These objectives assume a growth in public expenditure limited to 0.6% in volume between 2022 and 2027. “However, pension expenditure, which represents a quarter of this public expenditure, would increase over the period by 1.8% in real terms. »
In other words, the executive will need a reform to keep its promises to redress the accounts. Unless you find very significant sources of savings elsewhere.