December 11, 2019
Philippe to present pension reform bid
Édouard Philippe will announce the pension reform in all its details at noon today, including some last-minute touches. Judging his intervention in parliament yesterday, the government is keen to demonstrate that it is keeping its word. No, the reform will not be magical and won't keep people away from street protests. After all, the two most radical trade unions want the reform to be given up completely. And yes, there has to be a provision for a balanced pension fund, despite the insistence of the more moderate trade unions. Philippe also put back on the table raising the retirement age to 64. This was one of the lines Emmanuel Macron had thrown out of the window in the autumn when he backed the lengthening of the contribution period instead. Philippe also proposed as a deal sweetener a €1000 minimum pension that could start already in 2021. And the revaluation of teachers' pensions will start with the new generation entering the job force next year.
The idea is to create tangible benefits to divide those under the new regime from those who cling on to old privileges. But there is reassurance in the mix as well. The new point-based unified system might only start to apply for the 1975 generation. For transport-sector workers the government seems ready to allow for even longer transition periods, with the first to enter the new system being the generation of 1985. However, the trade unionists in the transport sector still want a total exemption of all current workers so that only new entrants start in the new system. Whether the reform will sail or not depends as much on the content as on the politics.
Philippe Aghion and three other colleagues argue against a delay, and that the reform results in a fair pension system where the same contribution leads to the same pension and allows careers to flourish across different sectors. In their op-ed in Le Monde they speak against overburdening the reform with too many objectives. The focus should be on the systemic part of the new pension system rather than on trying to condition it on a balanced budget. A later retirement age could be part of this reform, but only if it goes hand-in-hand with increased life expectancy. Pensions as a fraction of GDP or replacement rates are parameters that could help determine the retirement age.
It is important to create confidence in the new point system. The French public is still wary of the idea that technocrats could mess around with their pension points in the future. This fear must be addressed by a system with clear and stable indices that remain so even in recession times, spelling out clearly the circumstances under which they can be amended. The convergence between private and public-sector pension systems naturally poses challenges, and risks putting privileged civil servants at a disadvantage. It would be against the spirit of the reform to favour the privileged contributors. But there are solutions to allow this transition, either by gradually adjusting the pension contributions or the salaries. Delaying is not a solution, if the ultimate system is fair.