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While she might have abolished peculiarities such as yellow car headlights and the old-style caps of the gendarmerie, France’s pension system, based on répartition (redistribution), remains as distinct as ever.

Jean-Michel Charpin, member of France’s pensions council (COR), argued at a recent conference that it might have been a good idea to introduce funded pensions 25 years ago but says the opportune time won’t be for another 21 years – after 2035, when France’s demographic pressures start to ease.

Charpin was featured in the Parisian satirical magazine Le Canard Enchainé after his 1999 report on the French pension system.

“It must be taken into account that I have no particular opposition to funded schemes. But it is true that in some sense it is too early or too late.” Charpin said. “It would have been a good thing to have a funded system 25 years ago and it might be in the future.”

The most difficult period for the pension system will be from 2005-35, according to Charpin. He thinks it would be too much of a burden for younger people to pay for older generations at the same time as financing their own pensions on a funded basis. This, he says, would break the implicit contract of the current system. 

Charpin also points out that it is difficult to persuade public opinion that reform is necessary. He concedes that it was difficult to make projections using realistic assumptions in the past because these would always be questioned by the public and strike-ready unions. Now there is better acceptance of the situation, meaning it is “possible to choose more neutral assumptions”.

Funded pensions are not much of an issue these days in public debate, and the chance to introduce better transparency in the first pillar system through a Swedish-style notional DC system has probably now been lost. Take-up of the PERP and PERCO funded pension systems has been limited.

On the other hand, France’s household savings ratio is particularly high by international standards, even if most people are probably saving inefficiently, and largely through life insurance products. 

It would be far better to provide tax incentives through collective ‘second pillar bis’ occupational DC schemes in which the incentives would be understandable, investments would be collective and risk profiles would be clearly communicated and understood.

Looking ahead, economic stagnation could torpedo even some of the more “realistic” assumptions underpinning the French pension system, meaning further reforms would be necessary. That scenario seems entirely plausible, and would lead to painful future benefit cuts and contribution rises. Répartition may not have had its day but funded pensions might soon look like the least worst of the solutions. 

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