France : towards a universal pension system - Fiscal sustainability and social systems Challenges and policy options for the next decades ...
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France : towards
a universal
pension system
Berlin 22 June 2018
Fiscal sustainability and social systems
Challenges and policy options for the next decades
An overview
THE FRENCH PENSION SYSTEM
2
2
SINCE 1993, MAJOR PENSION REFORMS HAVE BEEN CARRIED OUT.
SIGNIFICANT EFFORT HAS BEEN MADE TO IMPROVE THE FINANCIAL
SITUATION
• 1993 (the « Balladur » reform) : review of the pension calculation
formula (25/40 years) and price indexation
• 2001 : creation of a Pensions Reserve Fund (FRR - Fonds de Réserve
pour les Retraites)
• 2003 (the « Fillon » reform) : extension of period of insurance
required for a full-rate pension; long-career-based early retirement
scheme
• 2008 (special regimes’ reform) : gradual convergence with existing
general regime (retirement age, period of insurance, contribution
rates, indexation, bonuses and penalties, etc.)
• 2010 (the « Woerth » reform) : increase of minimum retirement
age from 60 to 62 years, full-rate retirement age from 65 to 67 years
• 2014 (the « Touraine » reform) : extension of period of insurance
required for a full-rate pension (period of insurance required : 43 years
for those born from 1973) ; retirement from arduous work scheme
(« arduous work risk prevention account”, now called “job risk
prevention account”, includes an opportunity for workers to retire up
to two years before the minimum retirement age or individual training 3
A FINANCIAL POSITION THAT IS CLOSE TO BALANCE
RELATIVELY POSITIVE PROSPECTS
Pension system’s financial balance (%
of GDP)
Pension system’s
financial balance (→)
2017 : 0 % of GDP
2022 : - 0,2 % of GDP
2040 : +0,3 to -1% of GDP
(1,8 to 1,0 % productivity)
2070 : +1,1 to -1,5 % of
GDP (c.a.)
Public pension spending (%
of GDP)
Public pension spending
(↘)
2017 : 13,8 % of GDP
2022 : 13,5 % of GDP
2040 : 12,8 to 14,1 % of GDP
(c.a.)
2070 : 11,6 to 14,4% of GDP
(c.a.)
4THE AVERAGE EFFECTIVE RETIREMENT AGE HAS INCREASED
OVER RECENT YEARS (STARTED FROM A LOW BASE)
Impact on labour market
due to the effect of past
Average effective age of retirement pension reforms :
(by gender) • Increase in older workers
employment rate
• Continued increase even
post-crisis
• Marked increase in the 55-
59 group
• Generations born between
1951 and 1955 :
percentage of retirees at 61
years has decreased from
73 % to 34 %.
Average effective age of
retirement in 2016 : 61 y
and 10 m
• Women : 62 y and 1 m
• Men : 61 y and 6 m
Average effective age of
retirement (projection)5PENSIONERS’ HIGH STANDARD OF LIVING
Standard of living of 65 years + One of the lowest elderly
% average income of the population poverty
rates in the OECD
Total 65 à 74 ans 75 ans et plus
25,0
20,0
15,0
10,0
5,0
0,0
66 ans et plu s ( ↗) 6 6-75 ans 76 an s et plus
Source : OECD (2017), Pensions at a Glance, indicator Source : Eurostat (2016)
6.1. Note : poverty threshold at 60 % of median
household income
642 RÉGIMES
EXPECTED DE RETRAITES
YEARS EN 2018
IN RETIREMENT ARE RECORD HIGH
Life expectancy
France is indeed the OECD country
and effective age of labour market
with the longest average retirement
exit (2016)
espérance
Eséprance de viede
Expected vie résiduelle
years after
résiduelle à la sortie
labour
à la sortie du marché
market
du marché du
period, mainly due
27
du travail
travailexit
75
to early labour market exit (2016)
âge deAge ofdu
sortie labour
marchémarket exit
du travail (échelle de droite)
Average Expecte Expecte
effective d years d years
Normal
age of after at
pensiona
labour labour normal
ble age
market market pensiona
22 70 exit exit ble age
France 61,6 60,2 25,6 24,2
OCDE 63,9 64,4 20,3 20,8
Differen - 2,3 - 4,2 + 5,3 + 3,4
tial
17 65 German 65 63,2 21,1 19,3
y
Belgium 65 60,5 21,7 17,2
Italy 65 61,7 21,7 18,4
Swede 65 65,2 20,3 20,5
12 60
n
Source : OECD (2017), Pensions at a Glance
Source : OECD (2017), Pensions at a Glance Note : Normal pensionable age is shown for individuals
retiring in 2016 and assuming labour market entry at age
20
7A HIGH LEVEL OF INTRA-GENERATIONAL SOLIDARITY
• A mixed system : both a contributory system and a
non-contributory system
• Redistribution aspects of the french pension system
– Early retirement is possible for those with a disability, a long career, or a
history of arduous work
– Basic scheme and contributory minimum pensions
– Periods credited as periods of insurance (periods of cessation of work in the
case of sickness, maternity, disability, unemployment…)
– Pensions increase for raising children, reversion for surviving spouses and ex-
spouses
– 20% of pensions rights (employees and public employees) provided through
non-contributory schemes
• Significant redistributive effects
The minimum pension scheme and non-contributory benefits help achieve one of
the lowest elderly poverty rates in the OECD. First-tier pensions and instruments
for periods of unemployment and childcare generate substantial redistribution
– Income earning : a one-to-six ratio
– Retirement pensions : a one-to-four ratio (due to non-contributory benefits)
8THE SYSTEM REMAINS DEEPLY FRAGMENTED : 42 PENSION
SCHEMES (I)
Legacy of history and professional status rationale
:
42 mandatory retirement schemes
Source : HCRR
9THE SYSTEM REMAINS DEEPLY FRAGMENTED : 42 PENSION
SCHEMES (II)
• Unusually, in the private sector, the pension system has two
public mandatory tiers: a general defined benefit scheme
managed by Social Security (régime général) and a point system
managed by social partners (régimes complémentaires, notably
AGIRC-ARRCO), together representing about 70% of benefits paid
(financed on a pay-as-you go basis)
• The other 30% come from special regimes including those
covering civil servants
• Voluntary pensions play a limited role as many saving
instruments benefit from tax incentives and target long-term
savings
• The complexity of the pension system comes from the
duality of the mandatory system in the private sector and
also from the substantial differences in the treatment of
private-, public-sector workers and those covered by
special regimes
• Rules to compute contributory retirement pension and
non-contributory benefits differ across schemes 10A SYSTEM THAT CAN DISCOURAGE OCCUPATIONAL
MOBILITY
A typical case: a nurse could A single
belong to five schemes during occupation
her career Five different
pension schemes
Nurse in a Nurse in a Self-employed Working in a
private clinic nurse medical humanita Régime général
public hospital rian association
Régime de base de
la CARPIMKO
Régime Régime
général de Régime de
général de la
la sécurité base de la
sécurité
Caisse CARPIMKO
sociale sociale ARRCO
Nationale de
Retraite des
Agents des Régime
Collectivités Régime complémentaire de
Locales ARRCO complément
ARRCO la CARPIMKO
aire de la
CARPIMKO
CNRACL
Source : HCRR
11A FUNDAMENTAL NEED FOR THE PENSION SYSTEM TO ADAPT
TO THE LABOUR MARKET
Information on people's
pension entitlements has
improved recently, but a
complexity issue
Generations born between
1949 et 1992, all mandatory
schemes combined (2017) :
o In average, individuals
belong to 3,1 pension
schemes
o 1/3 of individuals
belong to 4 pension
schemes
o 250 000 people belong
to 7 or more pension Source : GIP Union Retraite (inter-
schemes institutional information agency on
people's pension entitlements) 12COMPLEXITY IS DETRIMENTAL TO THE TRUST IN THE SYSTEM
• The French pension system faced various
challenges :
o The overall complexity feeds the impression that other
groups might be treated favourably.
o Risk of loss of confidence in the system and doubts
about the sustainability of the pension system
• A paradox :
o Reforms over the last decades have improved the
viability and continuity of the retirement pension system
o Pensioners’ standard of living has never been higher
o Distrust remains regarding the financial sustainability
and the level of pensions in the future
13Prospects
MOVING TOWARDS A UNIVERSAL PENSION
SYSTEM
14
14THE REFORM PROPOSAL
• Strong campaign commitment of the President of
the French Republic
• The reform proposal :
“Our project is not to change this or that parameter of our
pension system.
It is to restore trust, (...)
It is to clarify rules once for all, by installing a universal
system, fair, transparent and sustainable (...)
We will create a universal pension system where one euro
contributed offers the same pension rights, whatever the
period it was contributed, whatever the occupation or status
of the person who contributed.”
Emmanuel Macron, En Marche platform
15THE UNIVERSAL PENSION SYSTEM : CLARITY, FAIRNESS AND
SUSTAINABILITY
The principles of the systemic reform :
• From a professional status-based system to a universal system
(common to active people)
• All 42 mandatory pension schemes concerned
• Renewed contributory principle: pension will be calculated on
the basis of work-related earnings adjusted over the person's
entire career (compared to earnings reference based on the
average of the 25 best years in private sector or on the last six
months preceding retirement in public sector today)
• Renewed non-contributory principle: while preserving a high
level of intra-generational solidarity, the universal pension
system provides opportunities to review, update and align the
non-contributory instruments
• A common unit of account (points or notional accounts)
• « For every euro contributed to the pension system, the same
pension rights »
• A balanced pension system from the date of its coming into force;
16BEHIND THE UNIVERSAL PENSION SYSTEM,
A COHESIVE AND INTEGRATED VISION OF SOCIETY
A realistic but ambitious political project :
• Solidarity between active people, whatever their status, so
that trust is restored
• Common non contributory benefits, so that fairness is
guaranteed
• Modernisation of the social protection system so that it
encourages professional mobility
A political project with fiscal and technical implications
:
• A balanced system from the date of its coming into force,
• A review of contributory efforts
• A reform which will improve transparency and facilitate
management of the pension system (monitoring, correction
of deviations),
• An organisational transformation in the coming years
17Prospects
THE METHOD : REFORM EXPERIENCE,
REFORM EXPERIMENT
18
18HIGH COMMISSIONER FOR PENSION REFORM’S MANDATE
• Appointment of a High Commissioner for Pension
Reform,
Mr Jean-Paul Delevoye (September 2017)
High Commissioner in charge of the reform (with a team of
special advisers) :
o organise the dialogue with the main actors in the field of
pensions (including social partners)
o coordinate at the inter-ministerial level the preparation of the
pension reform and the drafting of legislative and regulatory
projects
o monitor their implementation
• Universal pension system under preparation in 2018
• Universal pension system Act expected to be voted on
in 2019
• Gradual introduction of the universal pension system
19Une méthode à confirmer – Un dialogue constructif, transparent et permanent
AN OPEN METHOD : A TRANSPARENT, CONTINUOUS AND
CONSTRUCTIVE DIALOGUE WITH SOCIAL PARTNERS AND CIVIL SOCIETY
Communication of the results of the public
participation
HCRR
CONCERTATION PARTICIPATION
SOCIAL PARTNERS FINDINGS CITIZENS
EXPECTATIONS
Results of the public
PROPOSALS participation
used to inform
parliamentarians
Parliamentarians involved
in citizens' workshops
INFORMATION
JOURNALISTS
INFORMATION
PARLIAMENTARIANS
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