Minor Retirement Reform Raises Long-Term Questions

On October 15, a retirement reform measure passed in the House by a slim majority, 170 votes to 149. Two political parties, the Front de Gauche (FG) and Europe ÉcologieLes Verts (EELV), along with 17 Parti Socialiste (PS) members, abstained. The bill must still pass through the Senate before becoming a law, but will likely be left untouched.

Rallies gathered thousands in major cities last Tuesday to denounce this “historic error.” Several thousand marched in the streets of central Paris around mid-day. In Marseille, between 2,100 and 20,000 protestors gathered in the streets, and in Toulouse, 1,300 to 5,500 demonstrated their opposition to the reform.

Unions are blaming the government for pushing for a reform in response to the European Commission’s call for a cut in France’s overall public deficit and an overhaul of its economy. The Commission is concerned about the logistics of financing the pensions system without further burdening companies, given that French employers already pay the highest payroll taxes in the European Union.

Despite opposition, the reform passed without a major disturbance because President François Hollande had consulted with union leaders when drafting the reform. This proved to be successful, as the impact on employers and employees will be relatively small.

Contributions will be raised very slightly for both firms and workers, increasing by 0.3% for workers between 2014 and 2017, and for employers by 0.6%. In order to offset the increase in employer contributions, the government plans to lower the amount that employers pay for family benefits.

Independent workers (shopkeepers, artisans, entrepreneurs) will also see an increase of 0.6%. These workers will see another change; they will no longer be able to access the compte pénibilité, an account reserved for those working in difficult conditions. The government stated that, as their own bosses, they are responsible for avoiding difficult work conditions.

Although many regard this reform as a step in the right direction, it dos face some criticism. Not only will it go into effect after most baby boomers will have retired, it also fails to address the cost of paying for their pensions.

The reform fails to address the “special deals”, which allow some workers to retire early. These account for nearly two-thirds of the retirement system’s deficit, which is due to reach 20 billion euros, or 27 billion dollars, by 2020 if no major changes are made.

And, according to Thierry Lepaon, head of the General Confederation of Labor union (CGT), the reform penalizes younger workers. It forces them to work longer, pay for many years, and contribute for an additional 5 to 6 years from one generation to the next, he said at a rally in Paris.

The reform will lengthen the number of years employees must work to receive a full pension from 41 years to 43 years by 2035, with the first increases beginning in 2020. Despite this slight increase, workers are not being asked to work long enough, considering the fact that the life expectancy is rising.

Kirkegaard, economist at Peterson Institute for International Economics in Washington, told Reuters that the reform might have worked, if it was executed 20 years ago.

The politicians of Spain and Italy, two other European countries with unsustainable retirement systems, were finally forced to enact a reform when financial crises threatened to bankrupt their governments. Kirkegaard predicts that France is likely to pass another small reform in a few years, and will continue to do so, until the crisis becomes severe enough that the country’s politicians will be forced to make significant changes.

The problem is, at the moment, no party wants to make the needed changes. Even Hollande was very careful in his approach to the reform. Rather than make the risky political move of raising the current retirement age of 60, he chose to start small by raising the level and duration of pension contributions.

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