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Pension reform proposal in France: where do things stand?

1/31/2020

With the presentation of the pension reform proposal to the Council of Ministers on 24 January, we thought it would be an opportune moment to provide a progress report and update on some of the changes made in recent months.

Hélène BAUDCHON

TRANSCRIPT // Pension reform proposal in France: where do things stand? : January 2020

With the presentation of the pension reform proposal to the Council of Ministers on 24 January, we thought it would be an opportune moment to provide a progress report and update on some of the changes made in recent months. The core of the reform – the introduction of a universal point-based system – has not changed, but some key parameters have been adjusted significantly.

Let’s begin with the first generations to be affected. For those already working and affiliated with the current general pension scheme, the first to be affected would be those born in 1975, instead of 1963. But they will still begin to pay into the new system in 2025. Another novelty concerns younger generations, born after 2004, and who will first enter the labour force in 2022: they will begin paying directly into the new system at that time.

The “pivot age” of 64, another emblematic measure of the reform which was hotly debated, was eventually withdrawn from the draft bill. This was the government’s preferred option for absorbing the projected deficit of the current pension system in 2027. It is now up to a “financing conference”, created specifically for the occasion, to reach an agreement on a new set of alternative measures by the end of April.

However, the reform proposal still contains the notion of an “age of equilibrium” (which corresponds to the age of retirement at full benefits) as well as the bonus/malus system associated with it. This age of equilibrium is also expected to move in line with life expectancy gains. Its starting level must still be determined when the new system takes effect, based on the recommendations of the board of directors of the future National Universal Pension Fund.

Also concerning the system’s financial equilibrium, another key feature is that it includes a golden rule imposing a cumulative positive or neutral balance over a 5-year period. The multi-annual trajectory will be updated each year and the necessary adjustment measures would be taken in case of non-compliance.

The government is also beginning to deal with a series of outstanding issues, notably the specifics of the transition period and the convergence of the parameters of the special and professional pension schemes. Discussions have also begun on the bonus for difficult working conditions and the end of careers, which are some of the other sensitive points of the reform.

To conclude, the presentation of the reform bill to the Council of Ministers is a key step, but much still remains to be done. This can be seen in the positive, albeit critical opinion of the Council of State as well as in the critics about the impact study. Negotiations promise to be fierce when the reform bill is debated in the National Assembly, starting in February. A vote on the reform bill is still expected this summer. Thanks for watching. Tune in again next week for another three minutes of economic news.

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