Too much egalité?
French parliamentarians demonstrated greater spontaneity and arguably a greater sense of fairness than some of their counterparts elsewhere in Europe when they decided to subject their own pension arrangements to the reforms facing the pensions for all state employees.
The legislation which came into effect last July meant that the gradually improving ratio of work to remuneration enjoyed by the French did an about-turn. The reform of the pension system for state employees set in motion an increase in the number of years required to qualify for the maximum pension from 37.5 to 40 years and also of the retirement age, from 55 to 60, by 2008.
The aim, other than to reduce the cost of a very expensive system, was to align the pensions for state employees more closely with those found in the private sector.
It should also be pointed out that in terms of the balance between contributions and benefits the French parliamentary pension scheme is in line with the norms of the civil service and as such any criticism of the pension scheme for being over-generous would be unfounded.
Since 1938 the salary of parliamentarians has been linked to that of senior civil servants, and this was formalised by legislation in 1958. The total monthly gross salary of a member of a Députe or member of the French lower house (Assemblée Nationale) as well as for a senateur is E6,735.71. It is adjusted in line with each increase in the pay of the senior civil servants.
Parliamentary pensions in France differ from those found in the UK and in Germany in that the senators are also invited to join a pension scheme.
Founded in 1905, the senators’ scheme is one of the earliest funded schemes in France. From October this year, 331 senators will contribute to the pension fund following the increase in the number of senators effected by legislation passed in July last year.
The basic contribution that the senator pays to the scheme is 8.7% of salary; double that amount is contributed by the state (state contributions started in 1920). The ‘employee’ contribution is compulsory. The contributions were increased by 7% as of the beginning of this year in order, as Ernest Berthet at the fund explains, to “guarantee the long-term viability of the system and to finance the system of associated family benefits”.
The scheme provides a maximum pension of 84 3/8% of final salary. This accumulates at a uniform rate of 2.11% over a qualifying period of 40 years.
This revised term of service is theoretical for senators given that mandates are much shorter. In practice they have the option to acquire pension rights more quickly by paying double the basic contribution into the scheme during the first 17.5 years of service, thus doubling the rate of accumulation, and the basic contribution only in the five following years. In this way they can acquire the full pension in 22.5 years.
In other words, French parliamentarians may accumulate their pension faster than civil servants. But they have to pay for it.
There is no minimum length of service to qualify for pension rights under the scheme.
From the beginning of January 2004 the pensions are increased in line with inflation. Previously they had been increased in line with the salary of the senior civil service salary referred to above. The senator may not receive his pension until he leaves parliament.
Pension rights accumulated through service at the Assemblée Nationale and the Economic and Social Council limit the pension rights arising from the senators’ scheme; the total may not exceed the maximum pension of 84.375% of the parliamentary salary.
As of the end of April there were 597 beneficiaries of the scheme, of which approximately half were widows and widowers of deceased senators. For these the pension is half the senator’s pension, and this increases to two thirds from the age of 50.
The pension for children of deceased senators is 10% of the senator’s pension, and this increases to 20% when the child reaches the age of 16 and continues studying. Where both parents die, the child is entitled to two thirds of the senator’s pension.
The management of the fund is the subject of an annual report which is presented to the Questure, a committee of three Questeurs who are senators elected by their peers and are responsible for the administration of the parliament. There is no public access to the report. The Assemblée has an equivalent body.
Asset allocation is decided on a three-yearly basis when the liabilities for the next 40 years are measured by means of an ALM study. A benchmark is set in terms of target allocation and variations are permitted. The most recent ALM study was carried out in 2001 and set target allocations for the period 2002 to 2004.
At the end of last year, equities accounted for 36.8% of total assets under management. This was up from 30.4% at the end of the previous year, so that, as Berthet explains, “the fund could benefit from market recovery”. The share of equities was 3% higher than the target allocation fixed by the audit, and Berthet notes that this made “a positive contribution to the overall performance of the fund.” The increase in equities was mainly at the expense of money market placements. All shares are Euro-zone.
The share of bonds was stable at around 47%. This is lower than the benchmark of 52% set by the ALM but, as Bethet points out, “there are still rates that are attractive enough on the bond market to make a ‘notable contribution’ to the overall performance of the portfolio.” Two thirds of the bonds are from the Euro-zone.
Alternative investments as a proportion of total pension assets have increased fourfold to 1.6% of the portfolio during 2003. The medium term aim is to increase this part of the assets in the portfolio to 5% by the end of 2004.
Hewitt were the consultants for the last appointment of managers which included Indocam, BNP Paribas, HSBC, Lazard Frères, Edmond Rothschild, AGF, AXA, Pictet and Societe Générale. The fund does not yet have a custodian bank.
The fund has a set of accounts separate from other entities of the senate. For this purpose it also has a separate independent accountant.
The main difference between the MPs’ scheme and that of the senators’ scheme is that the former is pay as you go. In addition the rate of contribution is 7.85% of salary. In all other material respects the schemes are identical.
There are 577 MPs at present, all members of the scheme, and approximately 1,300 former MPs drawing a pension.
The political wisdom of the French parliamentarians of ensuring that their pensions were subject to the reform of the pension system in general has paid dividends. “Even though the French are still rather an anti-parliamentarian, there has not been any criticism of the pay and pensions of MPs in France,” says Claude Gaillard, first Questeur of the Assemblée. “The reason is that we ensured that our pensions were also subject to the reform of civil service pensions.”
He adds: “Most MPs are happy with what they receive, and as being an MP is not a real profession they find their pension arrangements and the recent reform quite legitimate. I couldn’t understand those MPs who opposed participation in the reform.”
The majority of French MPs come from the civil service. Gaillard stresses one of his main aims in terms of parliamentary remuneration is that “in order that we have the best possible balance of representation in the Assemblée, those in the private sector should not be deterred on financial grounds from entering politics. At present there is an imbalance; the situation might improve but we need time.”
The problem is re-employment at the end of one’s career in politics: “if you have been an MP for 10 years you are finished,” he continues. “You will have huge difficulties in returning to the private sector. Going into politics can harm your professional career. You lose your knowledge and expertise; you lose your place. If you have a good profession in France you won’t want to go into politics.”
The civil servants are much better off in this regard because they always find a job on their return. Technically civil servants do not resign from the civil service when they enter politics.
So how to encourage the private sector to enter politics? There is no easy solution, it seems.
The scope for adjusting pensions is limited. In spite of the recent reform the pension scheme for the civil service in France is still much more generous than the average scheme in the private sector. Civil service pensions are calculated based on average earnings for the last six months of service while private sector pensions are based on the last 20 years of service.
Furthermore, pay is not an obvious problem. Gaillard notes that “these days levels of pay and benefits in the civil service and those found in middle management are roughly equal”.
So in view of the need to make a career in parliament more appealing, isn’t the change of the qualifying period from 37.5 to 40 years a move in the wrong direction? “This is something we had to do,” says Gaillard. “And it is not a dissuading factor.”
Maybe the French will have to concede that the principle of égalité cannot be applied universally.