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France half way to solving pension issue - OECD

FRANCE - Complex tax and overgenerous benefits for public transport workers are holding up pension reform, according to the OECD.  

Changes since the early 1990s "have dealt with about half the long-term increase in claims on public finances that ageing would have been expected to generate," tound its latest economic survey on France, published today.

"Despite two important reforms in the last 15 years, the public pension system remains complicated and is still financially unsustainable," added the report.

The OECD pointed out that tax issues are the main focus for savers even before considering return, risk and management fees. Therefore the OECD recommends harmonisation of tax exemptions on savings. It added: "the multiplicity of tax arrangements seems unlikely to promote efficient saving behaviour".

It urged the new government of Nicolas Sarkozy to phase out "the extra generosity" of special pension regimes and bring them in line for that of the private sector. The OECD suggests this "would probably make it politically easier to take further measures to reduce the future cost of the general regime".

Special pension arrangements currently cover just under half a million workers in current or formerly state-owned companies, mainly public transport workers, according to the OECD.

Another possible reform angle is the scheme for civil servants. The OECD noted that while contribution years have been aligned with the private sector, the civil servants' scheme still remains a final salary arrangement as opposed to a career average model.

Furthermore, the OECD recommended continuing linking pension contributions to life expectancy in the 2008 review of the pension reform finalised in 2003. This indexation already led to an increase of the required contribution period to 41 years by 2012 and will rise to 42 years by 2020 if retained after the review. 

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