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Reserve fund vital to French pension reform

FRANCE – French prime minister Jean-Pierre Raffarin needs to be clearer and more vocal about pension reforms if he is to stand a chance of winning over the unions and achieving long-term goals, say two professors from the European University Institute in Florence.

They say the key to reform is the expansion of the reserve fund.

In a report for the Financial Times newspaper, Martin Rhodes and David Natali claim that France is in need of a new approach to pensions reform in light of continued public criticism and strike action.

“The general aim should be a comprehensive and coherent reform package with clear long-term goals rather than a medium-term reduction in pension costs dependent on over-optimistic economic forecasts,” say Rhodes and Natali.

“By presenting this package as a means of rendering the entire French welfare state more efficient and equitable, much opposition from the union side could be reduced, while strengthening the existing but moderate support of the general public.”

The key to pensions reform, they believe, is the expansion of the reserve fund, which “would not only improve long-term financial sustainability but herald a new equilibrium between tax-based funding and social insurance.” And “reducing the employment-destroying burden placed by the latter on labour costs would help solve France’s low employment problem, itself a major source of the crisis in welfare expenditure.”

Rhodes and Natali further recommend that France should improve public pension cover, extending pensions rights to those outside the current system and therefore “making the unions’ support of existing inequities even harder to defend.”

In order to further win over the unions, public sector cuts should be introduced over a long transition period, says the report.

One of the main issues, however, is that prime minister Jean-Pierre Raffarin must be more vocal and clarify his goals. Conclude Rhodes and Natali: “Of utmost importance is a clear enunciation of the expected increases in social contributions and/or taxation required to make the pensions’ system sustainable.

“Charles de Gaulle once said that ‘since a politician never believes what he says, he is quite surprised to be taken at his word’. After years of government prevarication, Mr Raffarin should speak clearly to the French people on the critical issue of pensions and prepare to be believed.”

The French pensions bill is presently being debated by the General Assembly and is expected to be amended and agreed by July 14. French unions, however, which have protested for several months regarding the proposed reforms are not giving up yet. More strikes are being planned by public sector workers, although news reports suggest that the numbers involved are waning.


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