FRANCE - Increasing the retirement age in France would be the "obvious" step to take in reforming the country's pension system, a French academic has declared.

With France's government pension deficit expected to hit €50bn by 2020, the country's President Nicolas Sarkozy last week said that to save the pension system, decisions about a reform could no longer be put off. While exact plans of what shape the reform will take are still undecided, one of the expected changes is an increase in the retirement age to 60 - currently below that of most neighboring European countries.

"It is obvious that the effective retirement age should increase in France," argued Arnaud Chéron, professor of economics at the EDHEC Business School.

He said an April report by the Conseil d'orientation des retraites (COR) should give a better indication of how fast the Government will be able to increase retirement age. However, Chéron cautioned the outcome of the reform, to be announced this autumn, may not be as radical as some hope.

"From negotiations between Government and unions, we can expect a limited increase in the contribution periods of between one to three years," he explained, adding that negotiations are unlikely to come to a compromise, so could result in a retirement age as high as in Germany, where it is currently 67, or even going beyond 63.

Chéron also believes the issue of financial incentives for those paying into pensions needs to be addressed, as he argues the changes implemented by current prime minister François Fillon in 2004 while the minister for social affairs were "not large enough".

In contrast, other pension experts argue that an increase in retirement age is not necessarily the only option open to the government, as France is more able to compensate for an ageing population thanks to a higher birthrate than at its EU neighbours.

Richard Bruyere, president of Parisian asset management consultancy Image & Finance, argues as France has the highest birthrate in Europe, it could support a lower retirement threshold for longer.

An average of two children were born to each French woman in 2008, making France the most fertile European country alongside Ireland and far ahead of neighbours Spain and Germany, who only saw one point four children born.

Bruyere, however, did agree that a lengthening of the contribution period was likely, as he had seen the idea raised by many commentators in the week since President Sarkozy's announcement.

While detailed plans have yet to be presented, Sarkozy cautioned last week that the Government could "no longer put off" deciding on change. Sarkozy concluded: "These decisions will be taken in early autumn and contained in a bill that the government will present to the two assemblies."

Until then, there will be continued speculation regarding the possible increase in retirement age and how the Government could go about staging the increase. And Chéron believes this will be the toughest part of the negotiations between unions and the Government.

"I think also that most of the negotiations will deal with the transition period, until it is decided which generation this increase in retirement age will apply to," said Chéron. And he accepts it is possible neither party will have an answer. "I think that this issue will heavily depend on the report [by COR]," he added.

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