FRANCE – The economic forecasts published by the Conseil d'Orientation des Retraites (COR) – which served as the foundation of the 2010 reform of the French pensions system – were "unrealistic", one expert has claimed.
Speaking at a recent pensions forum in Bordeaux, Raymond Soubie, adviser to former French president Nicolas Sarkozy, said the COR's forecasts for the government had been "far too optimistic" with respect to the unemployment rate, and had failed to consider any "pessimistic" scenarios.
The COR has predicted an unemployment rate of 7% for 2014. The current official rate, as at the end of April, is 10.4%.
According to Soubie, these "unrealistic" forecasts have misled the government.
"It seems today impossible to refinance and find a sustainable financial plan for the first pillar before 2018, as was originally planned when the government led by former prime minister Francois Fillon launched the 2010 reform," he said. "This was due to the unrealistic projections made by the COR."
Responding to Soubie, Raphael Hadas-Lebel, president at the COR, denied the accusation and said the group's reports would in future consider a number of possible outcomes, including best-case and worst-case scenarios.
"All the economic forecast studies we release in the coming years will be discussed during our meetings to find the best approach," he added.
Soubie said the future of the French pension system would depend on governments' capacity to develop a capitalisation system with products such as the PERCO developed in 2003.
He added: "We cannot continue to talk forever about the future of the pay-as-you-go pension system without tackling the real problem of capitalisation."
Meanwhile, Jean-Louis Malys – national secretary of the Confédération Française Démocratique du travail labour union and a member of the COR, likewise criticised the effectiveness of past governments' pensions reform efforts, arguing that they had been "unfair" for the French workforce and "unequal".
"In 2010, for instance, when the last reform was introduced, we already knew this wouldn't enable the first pillar to cover its deficit and rebalance its finances," he said.
But he grudgingly acknowledged that France, without the round of reforms previously implemented between 1993 and 2010, would now have to spend around 19% of its GDP a year to finance the pension system.
"Even though I do not approve of those reforms, there is no denying that, without these measures, our pension system would now be at risk," he said.
According to the COR's data, France currently spends about 13.1% of GDP on pensions, and this percentage is set to jump to 14.1% in 2020 and 14.7% in 2050.
Malys went on to say that, even in a best-case scenario with an unemployment rate of 4.5% and economic growth of 2%, the existing pension system could not last for much longer.
In 1993, prime minister Edouard Balladur and then-budget minister Sarkozy introduced pension reforms for the private sector only, aiming to extend the length of contributions.
They also sought to shift from the salary-growth rate to the consumer prices index when calculating pensions.
In 1999, France launched the Fond de Réserve pour les Retraites (FRR), which took income from the social tax on income from estates and investments, the surpluses from the Fonds de Solidarité Vieillesse and the Caisse Nationale d'Assurance Vieillesse, the sale of some state-owned assets and a number of endowments. The FRR was charged with investing that income until 2020.
In 2003, France also saw the introduction of a new reform with the length of contributions moving from 37.5 years to 40 years.
The financial crisis in 2007-08 pushed the government led by prime minister Fillon to implement further measures, with a new extension of the length of contributions and the postponing of the legal retirement age.