Pensions: a technocratic and uninspired reform
At a time of political manoeuvring that accompanies the review of the pension reform project in the Assembly, it seems interesting to apply our “Better World” grid to offer you a fresh and objective look.
To sum up the reform project, it is about preserving our pay-as-you-go system, one of the pillars of our social model since 1945.
By extending the legal working time from 62 to 64 years, it activates one of the three possible balancing levers, which are the increase in contributions of the working population, the reduction in pensions or the extension of the working time. By the latter choice of extension, the project makes it possible to balance the sum of the contributions of working people – who thus contribute for longer – with the sum of the pensions paid to retirees, whose number is constantly increasing due to the ageing of the population. The ambition of the reform would be an “ambition of justice and progress” and is based on 5 principles recalled by the Prime Minister: the savings made will not finance anything other than pensions, there will be no increase in the cost of labour nor an increase in taxes in order to preserve our competitiveness, the system will be balanced in 2030, pensioners will see their purchasing power increase and finally, the different situations between professions and career paths will be taken into account.
Under our microscope, does this reform contribute to a better world?
First of all, does it create a “common” World?
Does the reform involve all stakeholders? Or does it always focus on the same people? So should pensioners contribute to the financing by decreasing their financing needs and thus the level of their pension? This would be in line with economic studies (OECD, AFSE, etc.) which point out that the average purchasing power of pensioners has exceeded that of the general population since the 2000s, a French anomaly in Europe. This lever has not been explored. What about companies? Will they play the game by keeping older people in employment? Nothing is less certain when we know that despite the extension of the retirement age since 2010, the number of unemployed people over 55 has increased. Is an incentive desirable? Does the reform take advantage of this to restore purchasing power to women compared to men after a lifetime of work? Little is planned to correct this state of affairs: the amount of pensions paid to women is 40% lower than that paid to men, while in France in 2022, women’s salaries are on average 22% lower than those of men. On the other hand, the eventual extinction of the many special schemes in France (electricity and gas industries, notaries, etc.) does create a common base, but it will move forward at the pace of a senator. One could say at the pace of a grandfather because the “grandfather clause” will make the special schemes disappear only for new recruits from next year.
Secondly, is the reform sustainable, i.e. does it preserve the future from now on?
If we think about achieving financial equilibrium, which is the primary objective, this is only assured in 8 years, by extending the retirement age by 3 months per year. Some of the previous reforms were more proactive. Could we have gone faster? It would have been at the risk of frustrating the fringe of French people currently close to retirement and who form a large contingent (the “boomers” born around 1960). We can understand the government’s caution. Sustainable also means robust in the medium to long term to preserve the future. The current reform provides for a balance in 2030. But what about after that? Is it robust enough? Not sure, if you listen to the economists who point to bold macroeconomic assumptions (low unemployment rate, contained inflation, etc.). Moreover, robustness should also be seen in terms of consequences in the economic sphere. One example is the side effect of longer working hours on the increase in sick leave and deaths during working time. This is a mechanical and statistical effect which will lead to an increase in welfare costs. Who will pay? Companies at the expense of labour costs or employees at the expense of their purchasing power? The first option is more likely. In this case, will the marginal productivity of employees kept in employment (aged 62-64) more than compensate for the loss of competitiveness?
A crucial question is whether the reform is fair.
Especially since this is the promise of the government, which is selling a reform “of justice and progress”. Is it fair that people who started working early, the “long career”, contribute longer than most working people? Once the reform is implemented, the contribution period for a full pension will be 44 years. While there is some flexibility in the retirement age (e.g. a worker who started at 18 could retire at 60), the 44-year contribution period for a full pension is fixed in the current draft. Creating an inequality of effort (length of contributions) would be superimposed on the class inequality between workers and managers, whose starting age is about 4-5 years higher. Is this fair? In other words, does the measure ensure respect for what is due to each stakeholder according to their contribution? Not sure. But the heart of the matter is the duration of contributions, not so much the age of departure. Of the €18 billion that the reform represents in terms of revenue, lowering the length of contributions for long careers from 44 to 43 years would cost €1.8 billion. Does more justice mean less efficiency in the system? What is fairer? One element to look at is the possibility of changing the parameters of the reform over time. Are there review clauses here? Can the review explore new levers, for example on the purchasing power indices of pensioners which, if kept high in relation to the national population, would trigger additional funding or at least a dialogue to regulate what is fair? Finally, knowing the love of the French for retirement (“the capital of those who have none”), this paradise is all the more desired as it is the reward for a life of labour that has never been so marked by suffering at work as it is today. Is it fair, in an ambition of justice and progress, to tackle only retirement and its financing without “making a system”, without lightening the working conditions to make this work as happy as possible? The perception of solidarity between generations would be stronger and would replace a “system” by distribution that is now disembodied.
Finally, the system would not be debatable if it did not perform. An efficient world must create measurable value.
What does the pension reform produce in this respect? After having recorded surpluses in 2021 and 2022, the pension system would be in deficit on average over the next 25 years with, according to the Conseil d’Orientation des Retraites, projection hypotheses that are globally more unfavourable over the long term. The reform makes up this deficit in the same way as many developed countries before France. The official retirement age is 67 in the United States, Germany, Italy, the Netherlands, 66 in the United Kingdom, 65 in Spain…many developed countries already have retirement ages higher than those planned in France. The reform allows us to balance the books under more favourable conditions than many of our neighbours. Let us go even further. If we put this subject in perspective with our employment rate in France, in order to have a “surface” of work (duration of work x proportion of the population having a job), the reform also seems to be in the interest of France. Indeed, the employment rate in France, i.e. the number of people with a job compared to the number of people of working age, is one of the lowest in Europe. Consequently, the reform mitigates the rather low work capacity of the French (shorter working hours, lower employment rate) which would be 10% to 15% lower than our foreign counterparts and would have an impact on our GDP.
In total, if we were to score the 4 criteria from 1 to 5, we would say Common 2/5, Sustainable 2/5, Fair 2/5, Performing 4/5. An average of 10/20, all technocratic and overall uninspiring because it does not build enough bridges between our different challenges.
What about you? To what extent do you think that the project brings us closer to a better world?