FRANCE - Reforms to the French pension system are only the first step toward improving the country's retirement system and should involve a shift toward a funded pension system, Mercer has said.

Reforms - which will see the minimum retirement age raised to 62 and the age to draw a maximum state pension increase to 67 - were recently agreed by the government and are expected to become law in a few weeks' time.

However, Mehdi Khaled, a senior consultant at Mercer in France, said the current reforms were based on inflexible government estimates and that a shift to a funded retirement system would be the way forward.

He highlighted that the government's estimates required full employment in the country and that the increased retirement age would not impact on the employment prospects of younger workers.

Khaled said that only as part of this scenario of full employment would sufficient contributions be made to maintain the government's predicted balance, with estimates previously suggesting a €50bn shortfall by 2020 if reforms did not come to pass.

He added: "Given the critical situation, we wouldn't describe this reform as radical, but we would rather consider it as a first step to improve the current retirement system.

"Knowing that a pay-as-you-go system is closely correlated to demography, other changes will certainly be necessary in the future due to the active versus retiree ratio decrease."

Mehdi said the state system's biggest problem right now was the double contribution paid by workers, as those currently in the workforce have to cover the costs of both their future retirement and those currently in retirement.

"The possible and probably most efficient solution would be to partially reform the pay-as-you-go system by introducing a funded retirement system," he said.

"The government has nevertheless started working around this issue by promoting the collective defined contribution plans implemented by the employer, through mandatory negotiations with unions, which are supposed to occur for all the French companies before the end of 2012."

He conceded that while France was one of the last countries to implement pension reforms in Europe, this was due to the country's unique situation.

"One should not forget that, in France, the situation is quite specific, as the mandatory retirement scheme has until know often been the only source of revenues for the majority of retirees," he said.

"It will certainly take time to change the saving habits of the population and deal with the delay caused by the fact that such a reform should have been implemented years ago."