The maths was simple. If nothing was done France’s state pay-as-you-go pension system would show an e11bn annual deficit by 2020, and e37bn by 2040, according to the pensions advisory council, the Conseil d’orientation des retraites (COR).
Premier Jean-Pierre Raffarin’s government responded rapidly. Last year it increased the years of work required before retirement on a full state pension and laid the basis for non-state systems into which employees could pay to augment their state pensions: the plan d’épargne retraite collectif (Perco), a defined contribution system funded by corporates and available to all employees; and the plan d’épargne retraite populaire (Perp), an individual system based on a life assurance policy.
So, problem solved? Well, no. This is France, where tradition, symbolism and a willingness to openly disagree with allies are qualities as cherished as liberté, égalité and fraternité.
“The problem for the government is that the pension reform as it now stands does not go far enough,” says Etienne Lefebvre, social affairs correspondent for financial newspaper Les Echos. “There will have to be further moves within two or three years.”
In fact the timetable is already laid out. “The reform legislation specified that in 2008 there should be a tripartite meeting to discuss the performance of the reforms and suggest solutions if needed,” notes Lefebvre. “And the next presidential and parliamentary election is due in 2007.” He adds, though, that pensions will be firmly on the electoral agenda because in the first half of next year COR will issue revised forecasts.
So pensions are at the centre of a vibrant political debate? Well, no again. There appears to be a consensus to keep the issue off the agenda.
“Nobody wants to talk about it, there is a kind of strange silence over this issue,” says Marisol Touraine, national secretary for solidarity and social protection on the secretariat of the socialist party. “The government doesn’t talk about it because, having made the reform, it was punished for it, doing badly in the subsequent local, regional and European elections, and the pensions question was probably an important factor in this.
“The left clearly lost the struggle over pensions and the unions feel they suffered a real defeat. There were thousands on the streets and there were strikes but to no effect and the reform was implemented the way that the government wanted, so it was a very painful experience and the unions say that they haven’t yet recovered.”
More damaging, the battle exposed divisions between old allies and created new rifts. The CFDT trade union grouping took a different line to the socialist party’s. “It was difficult, especially inside the confederation because it was not about the reform but the way it was presented,” says Jean-Pierre Poulet, assistant to CFDT national secretary Gaby Bonnand.
“We were in a situation where there were street demonstrations against the government when our general secretary, François Chérèque, announced his support for the reform saying he’d managed to get the government to agree to certain modifications in the state proposals. The volte-face surprised confederation members. Two days before they’d been called on to support a strike and street demonstrations and then they were advised to support the agreement.”
But while until then the trade unions had presented a single platform of demands
it masked a
series of different approaches, Poulet adds. “The CFDT was not alone in supporting this reform. The CGC, for professional managerial staff, approved the scheme but the Christian-oriented CFTC said they had no position and the CGT and the FO were firmly against.
“What we ask is to improve the state system today, especially for low-paid workers,” says Nasser Mansouri-Guilani, economic adviser at the CGT. “The state system is not sufficient but at the same time workers do not have enough money to contribute to other systems. And if we don’t develop the state system the inequalities between retired people will increase.”
The Raffarin reforms were merely the latest in a series of pension initiatives by conservative governments. In 1994 the administration of Edouard Balladur began phasing in the raising of the years employees had to work to get a full state pension to 40 from 37.5. Balladur also changed the reference period for calculating a pension from the salary during the last six months before retirement to the average over the previous 10 years, lowering the payments substantially.
Attempts at further reform in 1995 by Balladur’s finance minister and successor, Alain Juppé, provoked strikes and demonstrations that, together with his perceived lack of presentational skills, contributed to his subsequent electoral defeat by a socialist-led left-wing coalition under Lionel Jospin. But Raffarin faced down renewed strikes and demonstrations to bulldoze the latest reforms through parliament.
Throughout this process the left-wing parties, and the socialists in particular, were vociferous in opposing the changes when out of office but failed to reverse or redraft them when in. However, they did define the extent of the problem, laying the ground for subsequent conservative initiatives. The initial Balladur reforms were inspired by
a white paper published by Michel Rocard’s socialist government in 1991 that highlighted
demographic implications. And the government of Jospin, between the Juppé and Raffarin administrations, set up COR, whose projections fuelled Raffarin’s initiatives.
But Jospin’s major contribution was the French pensions reserve fund, Fonds de Réserve pour les Retraites (FRR), which, financed by proceeds from privatisations and other state sources and with the money being put on the market, is intended to help offset budgetary pressures from the pension system.
For Raoul Briet, president of the FRR supervisory board, the current structure shows promise. “In my opinion there has been a lot of continuity in developments over the past 20 years,” he says. The author of several reports on the French pensions system, he accepts that “the new idea in the Raffarin reforms is that there is no definitive solution to this kind of issue – we have to go step by step.
“The idea was to say there is no day of revelation when what was black will be made clear, it’s a gradual process and we will return to examine the system every five years to decide further adaptations. But what we all know is that the system will be less generous in the future than it is now or was 15 or 20 years ago. So the idea is to develop, very gradually and softly, third-level pensions whether private, collective or within collective agreements, with a funded system.”
The reforms also recognise a person’s right to be informed about their pension, enabling them find ways to supplement it, through Percos or Perps, for example, when they see the size of the payments in 2020 or 2030.
Briet believes the addition of Percos and Perps to augment state pensions, the CNAV, the ARRCO/AGIRC, employer-sponsored and supplementary group retirement plans, and earlier offerings from banks and insurers strengthen the system. “We have many complex systems with many layers of registration and stratification, so every French person who wants to find their own solution has something that corresponds to their needs,” Briet says.
For others it has added to the confusion. “If you ask the man in the street what he understands of the new system, he will say nothing,” says Jean Echiffre, head of asset management at State Street, Paris. “The system is awfully complex. The first pillar is very opaque, you know that from one day to the other you can be asked to contribute more, and you can be told the pension has been decreased and you can’t really say anything and you don’t understand why. And now there is a new situation and again you don’t understand it. The Perp seems to have been built up to satisfy everybody but it may disappoint everybody. The positive point is that they have recognised that something new is needed and almost everybody agrees that. But the system is very imperfect and if I had to bet on it I would say that it will not succeed because it is too complex, too expensive for all the parties involved. I think there will be a second or third version recognising those problems.”
But who is to formulate them? The left is divided. “Within the socialist party the debate has been between those who thought that the issue of the number of years worked was sacrosanct and that the idea of raising it was unacceptable, and I think that they are in a majority, and those who thought that raising it was unavoidable,” Touraine says. “But we know that if we get back into power in 2007 we won’t go back to 37 and a half years because if we do we will have to find extra money. However, we have not said bluntly that we accept the 40 years. However, we were in power between 1997 and 2002 and did not reassess the Balladur reform during those five years. At the same time we had a debate on the Perps and Perco, about whether on retirement payment should be made on one capital sum, which is the position favoured by the left, and not get an annuity. We think this is a way to avoid reality but it’s just a question of symbols.”
Currently, the governing coalition is also far from united. Differences in outlook between Rafferin’s conservative UMP and the centre-right UDF were exposed during the parliamentary vote on the 2005 state budget, in which the UMP abstained. And Alain Madelin, a member of the majority with a track record on social issues, considers it important to replace the social security structure with a totally private system. What is more, the impending election and COR report might flush out Nicolas Sarkozy, newly elected UMP head and presidential contender, who as finance minister for much of 2004 made no overt contribution to the pensions debate but quietly diverted funds thought to have been earmarked for the FRR to ease the budget deficit.