Nina Roehrbein finds the French government rejecting structural change to the pensions system in favour of modifying parameters such as retirement age and length of service

Pension funds remain a rarity in the French retirement system, which is based on the pay-as-you-go approach. The compulsory system is threefold: the first pillar is social security and the second mandatory ARRCO for non-executive workers and AGIRC for executives in the private sector. All pension systems together carried a deficit of just under €11bn according to 2008 figures. Projections forecast a dramatically worse situation for 2020 and 2050, making a reform of the system a necessity.

Last year, the French government decided it would hold an interim rendez-vous retraites - a pension consultation exercise - in 2010. This is ahead of the next major one scheduled for 2012 after the 2008 exercise was widely accepted as a failure.

On behalf of the government, the pension advisory council (Conseil d'orientation des retraites - COR) issued a report about possible modifications to the system in January, such as merging the different systems into a point-based or notional account defined contribution system. Its April report contained simulations about the impact of such mergers. However, between the two reports, the government decided not to change the structure of the French pensions system. Instead, it announced it would modify the parameters, such as the retirement age, the length of service required to qualify for a full pension and the level of contributions. Its initial intention is to modify only the retirement age and perhaps the length of service.

In the social security system, the retirement age is 60, with the full length of service under the Fillon Act of 2003 stated as 41 years. However, the retirement age in the ARRCO and AGIRC systems stands at 65. To make up for this difference, an adjustment fund - the Association pour la Gestion du Fonds de Financement (AGFF) - was created in 1983, which allows employees to draw their full ARRCO or AGIRC pension at 60 too.
Since its inception, the AGFF has been re-negotiated and renewed each year, with the latest renewal lasting until 31 December 2010. But it is set to be renegotiated again for next year.

Since the COR's April report, the French government has prepared a bill on retirement reform. A parliamentary commission is analysing the text of the law, with its findings expected to be presented in parliament on 6 September.

The bill proposes a progressive increase in retirement age from 60 to 62 by 2018. Employees who started their career aged 14-16, however, will still be able to retire at 60. Employees in certain physically demanding sectors who as a result of their work will incur a disability determined to represent least 20% of total bodily use - which must be verified by an independent doctor - will also still be able to retire at 60. This goes against the wishes of the unions that wanted the rule to apply to all employees of certain sectors.

The ARRCO and AGIRC retirement age will also rise by two years from 65 to 67 by 2024, which will impact employees who fall into the highest pension bracket - AGIRC bracket C - and whose full pension will only take effect at that official retirement age.

The French government also changed the contribution level for civil servants and other public employees, but not for the employees of the private system.

From 2020, the length of service required for a full pension - 41.5 years in 2020 - will automatically increase by one third of the increase in life expectancy.

The annual review of the social security funding law is set to include small modifications to the running of DB schemes and tax-free portions in 2011.

Solvency II will affect insurance companies, mutual companies and ‘institutions de prevoyance'.