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France's Chamber of Deputies set to embrace pensions reform

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French MPs will vote today on the country’s new pensions reform, which seeks to further extend the length of contributions, increase social contributions and introduce special accounts for “hardship conditions” at work.

The new reform – part of president François Hollande’s plan to tackle the budget deficit, which could reach up to €20.7bn by 2020, according to official data – is to be adopted by the Chamber of Deputies today before the pension act is sent to the Senate for final approval.

Last week, a minority of deputies already pre-approved the measures announced by the government before the official vote took place this afternoon.

Among the measures agreed, one aims to extend the length of contributions from the current 41.5 years to 43 years by 2035.

Additionally, employers and employees will see their social contributions increase over the next four years – by 0.15 percentage points in 2014 and 0.05 percentage points in 2015, 2016 and 2017 – to reach an overall increase of 0.3 percentage points by 2017.

The government will also ask companies to finance special accounts for “hardship conditions” at work.

Hollande’s government announced a new set of measures to reform the French first-pillar pension system at the end of August, after it received a report from a pensions advisory panel.

This government convened the panel after a report from the pension steering committee, the Conseil d’Orientation des Retraites (COR), argued in December last year that the previous pension reform introduced in 2010 would fail to tackle France’s deficit by 2018, as previously expected.

In its final report sent to the government in June, the pensions advisory panel recommended a further increase in the period of contributions, tax rises for pensioners and an increase in the level of contributions.

Additionally, the panel recommended a limit on the indexation of pensions, which would lead the most wealthy retirees, already paying as much as 6.8% of general social contribution (CSG) in tax, see their pensions fall by 1 percentage point compared with inflation.

The CSG, introduced in 1990, aims to fund health insurance family benefits and the Retirement Solidarity Fund (FSV).

In May, the European Commission called on France to introduce pensions reform after granting the country a further reprieve in correcting its “excessive” budget deficit.

At the time, it said: “New policy measures are urgently needed to remedy this situation while preserving the adequacy of the system.”

According to Brussels, such measures could include a further increase in the minimum and the full-pension retirement ages, as well as the contribution period, to obtain a full pension.

Additionally, France could adapt indexation rules and review the currently “numerous exemptions” to the general scheme for specific categories of workers.

However, the Commission warned against increasing the level of social security contributions, given its negative impact on the cost of labour.

After further consideration, the French government decided to ignore all the recommendations made by Brussels.

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