Posted Jan 9, 2023, 11:30 AMUpdated on Jan 10, 2023 at 9:57 am
The government has officially launched its pension reform. The project must be presented to the Council of Ministers on January 28, before being debated in Parliament. A parametric reform, it mainly aims to raise the legal retirement age.
However, the executive’s project also intends to touch on other aspects of the pension system, such as special schemes. Here are the key words and concepts to understand everything in the current debates on pension reform.
Legal departure age
L’legal retirement age is the center of the reform desired by the government. This is the age from which a person can stop working and ask to receive a retirement pension, that is to say the social benefit paid to retirees. This varies according to rights. Before this age, it is not possible to receive your retirement pension, even if you have contributed enough.
The legal retirement age is currently set at 62 years. However, there are several exceptions, for those who started working very early, for example, or who have a disability and can take a early retirement. Not to be confused with the phased retirement which allows, at the end of the career, to work part-time by receiving part of his pension.
Note, there is no ” compulsory departure age “to retire in the private sector. In other words, it is possible to work as long as desired. But employees aged 70 or over can be retired by their employer without their consent.
Quarters validated
However, there is a second condition for benefiting from a full pension, ie a pension equal to 50% of the average annual gross salary. You must have contributed enough quarters validated. Please note that four validated quarters correspond to one annuité.
The validated quarters are mainly the quarters contributed, that is to say the periods of work during which contributions were deducted from the income of an asset and paid to pension funds. To validate a quarter, you must have received the equivalent of 150 times the hourly minimum wage and contributed on this income. In other words, the higher the salary, the fewer working hours are needed to validate a quarter. But we can only validate 4 quarters per year at most.
To the quarters assessed, are added the assimilated terms, that is to say the quarters allocated free of charge during periods of unemployment in particular. There are also bonus quarters for kids. Four trimesters are granted for maternity or adoption, and four trimesters for education. The quarters of increase for maternity are automatically granted to the mother, the others are to be shared (for children born or adopted after 2010) between the two parents.
Since 2020, due to the Touraine law voted in 2014, the number of validated quarters required to obtain a full pension is gradually increasing. In the long term, it will be necessary to have validated 172 quarters, or 43 annuities, to be able to retire at full rate. Note, it is not possible to retire before the legal age on the sole pretext of having validated all the necessary quarters.
· Difficulty
Some professions present particularly difficult working conditions, and can even no longer be exercised after a certain age. Also, the pension system takes into account hardship criteriasuch as exposure to noise, intense temperatures or night work.
Since 2015, the professional prevention account (C2P) allows employees exposed to such conditions to acquire points. They can then be entitled to training, part-time work or early retirement.
· Next to
If an employee decides to retire without having validated enough quarters, he is subject to a décote. For a private employee, a full-rate pension is equivalent to 50% of the average gross annual salary. For each missing validated quarter, this rate is reduced by 1.25%. For example, an employee who is missing 4 quarters when he retires has a pension calculated with a rate of 47.5%.
In order not to suffer a discount, there are two solutions. The first is to work longer. Indeed, there is an age from which it is possible to leave at full rate regardless of the number of quarters validated. In the general case, this age is fixed at 67 years.
Alternatively, it is possible to make a quarter break. In other words, in certain cases and under certain conditions, it is possible to validate quarters by paying a certain sum to the pension insurance funds. This can make it possible to reduce or eliminate its discount.
Conversely, employees who have reached the legal retirement age and validated enough quarters can benefit from a surcote if they continue to work. For each additional quarter contributed, the basic retirement pension is increased by 1.25%, i.e. 5% per additional annuity.
· Minimum contribution
As mentioned above, the amount of the retirement pension is calculated based on the past salary. For example, the annual retirement pension of an employee who leaves at the full rate (without discount or premium) corresponds to half of the average of his annual income for the best 25 years of his career. In the Civil Service, the monthly pension corresponds to 75% of the gross index salary received over the last 6 months, excluding bonuses.
However, there is a minimum retirement pension for employees who have had low salaries during their career: this is the contributory minimum. If, by virtue of the calculation rule mentioned above, a pensioner’s basic pension is less than the contributory minimum, his basic pension is increased. This contributory minimum varies according to the number of quarters contributed. Conversely, there is a maximum pension amount.
Special diet
There is not one, but several pension funds. Most salaried workers, as well as non-salaried craftsmen, traders and industrialists, depend on the general scheme of Social Security. But farmers and agricultural workers are, for example, attached to the Mutualité sociale agricole (MSA). Civil servants also have their own pension funds.
There are many other special diets, with their own rules. This is the case for employees of the SNCF, the RATP, the gas and electricity industries, the Paris Opera, the Banque de France, etc. Their size and rules vary greatly from regime to regime.
Please note that the question of special diets should not be confused with the notions of régime de base et supplementary scheme. For example, a typical employee in the private sector must contribute to Social Security, his basic scheme, and to Agirc-Arrco, his supplementary scheme. It is by adding these two schemes that one reaches a pension of an amount equivalent to 50% of the average gross annual salary. As there are several basic plans, there are several complementary plans. For example, public service contractors contribute to Ircantec.
Also note that we are talking about supplementary pension plan to designate the retirement schemes offered by certain companies or by banks and insurance companies in the form of retirement savings products. Subscription to such plans is not compulsory.
Pay-as-you-go scheme
The argument, repeated repeatedly by the government and its supporters to justify the reform, is the desire to save the pay-as-you-go scheme. This expression describes the operation of the pension system: in France, it is the contributions of active workers that pay the pensions of retirees.
This system is opposed to funded plan, as it operates in supplementary pension schemes. Thus, it is employees who build up savings throughout their careers which will then be used to receive a pension when they retire. There is no solidarity between generations.
There is no question in the current project of changing the operation of the pension system, which is why we are talking about parametric reform. The government does not intend to change the structure of the pension plan, but simply the parameters – in particular the legal age – which apply within the current system.