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France: Agirc-Arrco reserves will be saved

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Patrick Poizat, board member of GIE Agirc-Arrco and of Agirc federation, tells Alain Lémoine of his optimism about the future of the fund following reforms in March

What are the benefits of the March 2013 reform?
The first benefit of the reform is to seek a partial or complete reconstitution of financial reserves, in order to reassure contributors that they will get their pensions. A second benefit will be to return some flexibility to the management of the reserves and achieve a better optimisation of its returns. Under a certain level of reserves, there are too many constraints on investment choices with a shortening horizon, and too much money has to be kept on money-market funds not earning any revenues for the system.

How will Agirc-Arrco’s balance be restored ?
The reform has introduced a new logic. Before, pensions were increased in line with inflation, or kept up with average salaries. The collective agreement reached by social partners managing Agirc-Arrco calls for a shared responsibility between its three constituent parties to save the system – employees and employers (who respectively pay for 40% and 60% of contributions), and retired beneficiaries. For retirees, pensions will be raised by one percentage point less than inflation, without a decrease if inflation is below 1%. For employees and employers, contribution rates will be raised by 0.1% as of January 2014, and another 0.1% from January 2015. But as the usual 125% ceiling rate will be applied, it will actually translate into a 0.125% rise of the contribution rate, bringing €527m through 2014, and more the following years thanks to a snowballing effect.

In addition, the system will gain flexibility and reduce its treasury cost by paying pensions more progressively. Instead of paying three months of pensions in one shot at the beginning of every quarter, Agirc-Arrco will pay them monthly, starting in 2014. Also, contributions should be raised faster. As of 2016, employers should pay them at the end of every month, as opposed to the end of every quarter. These two measures are expected to reduce the working capital needed to match payments with incomes by €9.5bn, or about half the working capital needed today.

Will this reform save Agirc-Arrco’s reserves?
Depending on economic growth projections, employment rates and contributions, the agreed and planned reforms could postpone by four to six years the time at which reserves were expected to dry up, according to last year’s estimates. Reserves could last until 2020 or 2022 for Agirc, and 2024 or 2026 for Arrco. This agreement is one big part of the solution, as it should cover about 50% of the financial needs to restore the system’s balance and rebuild its reserves to a target level of about €48bn by 2017, or about 60% of the pensions served a given year.  The recovery is expected to be more significant when government reforms to the first pillar are decided, and then applied to the Agirc-Arrco regimes. On 20 March, Marisol Touraine, the French minister of social affairs, announced that the government will take courageous measures to reform pensions.

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