French Pension Reform: The Retirement Age Red Herring

There are three ways to adjust the pension system: by increasing the amount of old-age contributions, decreasing the amount of pensions or increasing the retirement age. In a context of social crisis - 65% of participants in the Yellow Vests movement say they have difficulties in making ends meet - it seems inconceivable to significantly reduce pensions. In a context of low competitiveness, it seems equally problematic to increase contributions, otherwise the cost of labor will increase. The only remaining lever is therefore the retirement age.

Debates around this reform have focused on the retirement age, and opposed those in favor of its reduction to those who believe it should not budge. Do you think it is realistic to raise the legal retirement age?

The retirement age issue must in any case be addressed, even if it should not be the central issue. During his campaign, Emmanuel Macron certainly committed to not change it, yet no viable solution was found in exchange. It is no coincidence that the OECD, which unveiled the latest version of its economic study of France on 9 April, advocates for the raise of the retirement age to ensure the system’s sustainability.

The idea of a "bonus malus" system to encourage the French people to work later, under penalty of having their pensions reduced, is only a way of postponing the (real) retirement age. Indeed, some retirees will have to continue working until they have contributed enough to receive a decent retirement pension, regardless of their age.

We must also demystify the assumptions and preconceptions of both public authorities and companies. 

• First, many French people want to continue working after the age of 60. As described in our report Faire du bien vieillir un projet de société (literally, "Ageing Well: A Societal Project"), older people who remain in employment feel on average more integrated into society and are in better health than those who, at the same age, have already retired. Pension reform must be an opportunity to address the employment issue of older people: the participation rate of 60/64 year olds remains very low today in France (below the European average of 10 to 12 points).
   
• This leads us to a second - false - assumption: it is essential to encourage the business environment to ignore the age of employees and to focus instead on their motivation and experience. The business environment tends to believe that you can no longer work beyond the age of 50, while people in the 50-55 age group benefit from their past experiences in a way that the youth cannot. Delaying the retirement age goes hand in hand with an increase in the value of the work of older people, otherwise the pensions saved will be transformed into unemployment benefits.

What strategy would help the debate to progress towards a fairer and more sustainable pension system?

In principle, the upcoming reform’s clear goals are justice and readability, as it aims for a unification of pension systems leading to a point system. We already emphasized the virtues of such an idea: the lack of readability of the current system creates a grey zone, which is itself a source of perceived social injustice. The problem is that this reform, by itself, does not ensure the system’s long-term financial health.

In general, the approach to the pension reform should privilege goals over means. Regarding the goals, we must strive for increased readability, greater social justice and the system’s long-term sustainability. Then comes the question of means: a systemic reform is not necessarily a panacea, because it might try to please everyone and avoid disappointments, and therefore not face head-on the problems that our system suffers from. The message to be conveyed in the citizen debate is as follows: given the demographic equation, the more pensioners there are, the more adjustments will have to be made either to the amount of pensions, the level of contributions or the retirement age.