Posted Jan 26, 2023, 11:32 AMUpdated on Jan 26, 2023 at 11:42
Work longer to increase the contributions paid to pension funds and thus rebalance their budget. Here is a summary of the government’s objective with the pension reform it defends.
According to the executive, this is the only solution to save the French pay-as-you-go model. For opponents of the postponement of the legal retirement age, this is not the case. Admittedly, the number of contributors and with it the contributions fall, but it would be possible to find other sources of financing to ensure the balance of the system. In reality, this is already partly the case: the share of contributions continues to decline in the receipts of pension funds.
Here is, in four points, what you need to know about the current financing of the system.
1. Employee and employer contributions
At the base of the French distribution system, there is the idea that current workers must pay the pensions of current retirees, and that they will benefit, when they are in turn retired, from the pensions of future workers. The workers’ contribution is made in the form of social, wage and employer contributions, paid by the employers.
According to the Pensions Guidance Council (COR), social contributions allocated to the pension system represented 272.8 billion euros in 2021, or 79% of the 346 billion euros in global resources.
Of this amount, part is paid by the State, which pays contributions like any employer. In 2019, this amount was 41.6 billion euros, or 15% of total contributions and 12% of total revenue. As the COR notes, these contributions can only be paid because the state collects taxes, so can be counted as such.
If contributions remain the main source – and by far – of revenue for the French pension system, their share continues to decline. In 2004, contributions represented 82% of the resources of the pension system, i.e. 3 points more than in 2021. If we look only at the National Pension Insurance Fund (Cnav, basic private scheme), the The decline is even sharper: from 83% in 2003, they have fallen to 67% in 2021.
2. Affected taxes and duties
The second largest revenue from the pension system – 12% of the total – is made up of all taxes and duties allocated to social protection schemes (Itaf). There are about fifty. In 2021, this represented 40.8 billion euros for the pension system alone.
The first of the Itafs, and undoubtedly the best known, is the generalized social contribution (CSG). It applies to earned income, but also to replacement income such as unemployment benefits or retirement pensions, which therefore contribute to the financing of the retirement system, income from assets, such as property income, income from investment, such as income from movable property, or gambling.
The other Itafs apply, as the case may be, to the income of employees, to production, to consumption, or to other income. Thus, if we take into account all the income from the pension system (contributions, Itaf and others), income from activity provides 89.8% of income – 10 points more than taking into account only contributions -, capital income contributes 4.1%, consumption 2.7% and pensions 3.4%.
These tax revenues, attributed to the pension system, can be explained by two main reasons. On the one hand, the State compensates for the exemption from social contributions on low wages. On the other hand, it finances the solidarity mechanisms set up in the pension system, such as Aspa (minimum old age) or even the quarters validated free of charge in the event of a period of unemployment or work stoppages.
3. Transfers from third-party organizations and other resources
Transfers from third-party bodies – 7% of pension system revenue – correspond to payments from other social security bodies to pension funds. For example, the family branch finances pension rights related to children. The unemployment branch contributes to the payment of rights linked to periods of unemployment benefit.
The remaining 2% is paid by the State. These include balancing subsidies allocated to certain special schemes in deficit. According to the COR, these subsidies represent 81% of the revenue of the mining regime and at least 60% of the revenue of the special regimes of the SNCF and the RATP.
4. Funding very dependent on the plans
Once this general framework has been established, it is clear that the funding structure varies greatly depending on the pension scheme. The pension system for civil servants is based almost entirely on contributions, in particular employers’ (81%). Indeed, employers’ contributions – mainly financed by taxes, since the employers concerned are the State, local authorities and hospitals – are recalculated each year so as to balance the system.
Conversely, the special regimes, marked in particular by very unfavorable demographic balances, live mainly thanks to state aid. 8% of their funding is provided by Itaf and supported by the State, to which are added some 35% of balancing subsidies from the State.
As for the basic scheme for private sector employees, the situation is more mixed. Nearly half (47%) of the financing of the scheme is made possible by contributions, and 14% by Itaf and other State support. To this is added, in a relatively large proportion compared to the other schemes, support from the Old Age Solidarity Fund (FSV) up to 12% of total revenue.
Financed mainly by the CSG, therefore by taxes, the FSV supports the financing of the minimum old age, certain quarters validated free of charge, as well as certain one-off devices. It is thus the FSV, thanks to the pension funds, which had supported the exceptional payment of 40 euros in 2015, recalls its site.