The pension system in France, similar to the practice in many European countries, is held by several investment funds that are mostly managed by the state. It is a public system that is based on the principle of intergenerational solidarity, meaning that the contributions of current employees finance the retirement benefits of current retirees. The current retirement age is 62 for both women and men. The pension payment is determined according to the following calculation: First, the average salary for each year of work is checked. Then, the 25 highest average salaries from all the years of work are taken and averaged. From the amount obtained, a pension of 50% is paid to the pensioner. For example, For an employee who has worked for 45 years, they will calculate the average salary in each of the years and from that they will take the 25 highest, average them and pay 50% of the amount received. All this is assuming that the employee is entitled to a full pension. To benefit from a full pension the employee must have worked for 42 years (given that he was born before 1973), when periods of studies, maternity leaves and temporary unemployment may be counted.
An employee who has reached the age of 62 and has not worked for 42 years can still retire, but he will receive a partial pension according to the following calculation: for every three months he is missing, 1.5% will be deducted from the pension he will receive. However, any employee who reaches the age of 67 can retire and receive a full pension, even if he has not completed 42 years of work. For those with low salaries who have completed 42 years of work, the state guarantees a minimum allowance that currently stands at 1,100 euros per month (about NIS 4,300).
so whats the problem? On one leg: an increase in life expectancy and a decrease in the rate of population growth. As in all developed countries, life expectancy in France is increasing, and with it the pension period of each person, which increases the costs of financing the pension system in a way that endangers its stability. In fact, when you look at the average length of time a person spends in retirement – France is the second country in the OECD for men and the third for women (23.5 years for men and 27 for women).
In addition to this, the birth rate in France is not high, and since the funds paid to retirees are financed by the employees, a growing gap is created between the number of employees and the number of retirees. In fact, there are currently 16 million retirees who rely on 28 million workers, that is, a ratio of 1.75, compared to a ratio of 2.1 in 2000. About 700 thousand pensioners are added every year, and by 2040 the ratio is expected to be 1.5, and by 2070 at 1.3.
These trends are expected to bring the system to a deficit of 14 billion euros by 2030. France is already the third largest country in the OECD in terms of public spending on old-age benefits (including pension payments), which amount to 14.5% of GDP – almost double the OECD average of on 7.74%, and close to 3 times that of Israel which spends 4.59% of GDP. Not surprisingly, the retirement age in France is low compared to most developed countries. Thus, for example, in Great Britain it stands at 66 years and in Germany at 67. The goal of the reform is to adapt the system to changes in life expectancy and demographics and thus to financially stabilize the pension system.
The main change proposed by the reform is the gradual raising of the retirement age from 62 to 64 until 2030, when each year the current age will be extended by three months. In addition, the number of years required to receive a full pension will be gradually increased from 42 to 43. What will not change is that any employee will still be able to retire at age 67 and receive a full pension. These measures are expected to increase the system’s revenues by 17.7 billion euros, which are expected to close the deficit.
In addition, the French pension system has 42 special programs for groups of workers with preferential conditions, such as early retirement age and higher wages. So, for example, there is a special plan for the employees of the French Electric Company and another plan for the employees of the railway company, and since this is France after all – the employees of the Paris Opera also have a special plan.
The reform seeks to put an end to these special programs, but only for the future employees of these companies. The employees who already enjoy the unique conditions will keep them.
President Macron stated that in addition to stabilizing the pension system, the goal is also to create a more equitable system, and for this purpose approximately 4 billion euros will be dedicated out of the 17.7 billion that will be saved. One of the steps taken is the increase of the minimum allowance to 85% of the minimum wage: this means an increase of the current minimum monthly allowance from 1,100 to 1,200 euros.
Also, the reform will not apply to various employees such as hospital workers and soldiers, nor will it affect the disabled and those with disabilities who will be able to continue to retire at the age of 55 and 60 respectively.
The polls show that about two-thirds of the French oppose the change. According to the opponents, this is a harm to the standard of living and they demand that other measures be taken first, such as raising the tax rate on the top deciles and increasing the employers’ contributions and taxation of the recipients of the high pension benefits. In French culture there is a special sensitivity to changes in the quality of life, and these changes are linked to issues such as inequality and social justice, which create strong opposition.
Indeed, the opposition of the French to this reform is not specific: during his first term in 2019, Macron tried to pass the reform and encountered enormous opposition, which, together with the outbreak of the Corona epidemic, led to its cancellation.
Now France is closer than ever to a change in the pension system that will help it stabilize, at least for the next few years. However, until its implementation, a long public struggle is expected.