French Prime-Minister Lionel Jospin underlined France’s commitment to its pay-as-you-go retirement system as the ‘clear choice of our society’ in a March 21 state address. Accepting France’s retirement system would face “financial difficulties” in the future due to “demographic evolution”, Jospin, however, dismissed any shift to a capitalised pension fund system.
“Certain people tell us that the ‘répartition’ system, shaken by demographic ageing, should give way to a funded system inspired by certain Anglo-Saxon countries. This is in no way our approach,” he declared.
Jospin called the pension funding solution “neither honest, nor realistic”, warning that it would threaten social protection in France by taking money away from the social security system, while contributing to greater social inequality.
He noted that the retirement question also needed consideration in the context of strong economic growth and the ‘credible’ prospect of a return to full employment.
However, responding to France’s demographic time-bomb, which he confirmed would see seven retirees for every 10 workers by 2040, Jospin proposed three ‘orientations’ to tackle the situation by 2020.
The first is a progressive alignment of public sector employee pension contributions rising from the 37.5 years today to the private sector level of 40 years.
This, Jospin says, will meet the F170bn defecit in the public sector system on a 2020 projected horizon.
However, he notes that the changes are negotiable: “It is necessary to act but the government does not want to impose a solution. Consultation must be the rule.”
Secondly, Jospin announced the reinforcement of the reserve fund created last year to face up to France’s demographic imbalance.
The fund, he says, which is set to reach F20bn (E3bn) by year-end will have a target of F1trn by 2020. F500bn of this will come from the excess build up of the country’s national ageing solidarity funds and F150bn from social payments on capital revenues. A further F20bn will result from reforms to France’s Caisses d’Epargne, with the remaining F330bn procured from financial investment of the fund assets.
Finally, Jospin pronounced the creation of a ‘council of orientation’ made up of parliamentarians, social partners and qualified professionals to report on France’s retirement elements and propose possible reforms.
Arnauld D’Yvoire of the Paris based Observatoire des Retraites, comments: “the accent of Jospin’s speech was more on future negotiation than any concrete points.”
“ In terms of the reserve fund, Jospin called it a ‘symbol’, but it will also be a capitalised fund and the question is how it will be invested.
“ The debate in France has been that equities are overvalued if you invest on a ten year horizon but the best option for a 30 year horizon. However, we are looking at a 20 year horizon, so what do they do?”
He adds “If we go a capitalised route for the reserve fund you could also ask why we don’t do it for retirement schemes in general.” Hugh Wheelan