FRANCE – French pension reform initiatives are “going in the right direction” says the Organisation for Economic Cooperation and Development - although more needs to be done to ensure medium and long-term fiscal stability.

While growth is expected to pick up next year, without substantial reforms over the medium-term, the ageing of the population is threatening economic and fiscal equilibrium, says the OECD.

Pension reforms are moving in the right direction but “additional policies to slow the expansion of health and pension spending are required….Reforms to early-retirement schemes and the pension system need to be continued so as to restore work incentives for older workers.”

The OECD is suggesting that pension income should be made more actuarially neutral. French authorities plan to make benefits more actuarially neutral around the age of 60 which will get rid of the existing financial incentive to take one’s pension as soon as 40 years of contributions have been made.

This should result in a significant number of people over 60 choosing to continue to work, leading to higher levels of output and higher tax revenues, believes the OECD, and should be further expanded by allowing individuals to draw reduced benefits at an earlier age.

Early retirement state-subsidised schemes should also be scaled back, says the OECD. At the moment many exit the workforce early on the benefits offered by UNEDIC (the unemployment insurance system) rather than the state-subsidised early-retirement programmes.

“Policy-makers need to eliminate this programme as a source of job-loss, while preserving extended benefits for older workers who genuinely lose their jobs and providing lifelong training opportunities to workers so that the remain attractive as employees.”

The proposals appear in an OECD assessment and recommendations report for the French economy.