If you’ve been reading the news recently, you may have heard about the ongoing strikes in France. While industrial action isn’t unusual, the scale and timing of these strikes is. As well as taking place over Christmas - paralysing the country’s transport infrastructure - they have also involved most of the major unions. The biggest day of protest saw almost a million workers take to the street, grinding some cities to a standstill.
The cause of these strikes is a suite of pension reforms by President Macron’s ruling government. Pitched as a way to cut down on red tape and make the pension system fairer for everyone, critics have suggested that they will ultimately leave thousands worse off. Here’s everything you need to know about the proposed French pension reforms, and what effect they are likely to have as we enter the New Year.
What are the French pension reforms?
The proposed reforms to the French pension system affect what are known as the ‘régimes spéciaux’, or special regimes. The special regimes constitute a total of 42 different pension schemes covering 1.1 million retirees in France, meaning that around 6% of pensioners are affected. The regimes apply mostly to former employees in the public sector, including the transport sector and energy sector, as well as miners and some other groups.
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The current government is planning to reform the pension system by essentially scrapping the existing system of special regimes. While some of the benefits of these separate schemes will be protected, all pensions will be unified into a single, points-based system. This will calculate most pensions based on an average of earnings across a 25-year period, as opposed to the current system, where some workers’ pensions are calculated based on their last six months of employment.
Another aspect of the changes is a potential increase of two years in the retirement age for some workers. While the official retirement age in France is currently 62, the average is 60 - three years earlier than the European average, and four years earlier than similarly wealthy countries. In certain circumstances, individuals in the special regimes can retire at 52, although the average is between 55 and 57. With a rapidly ageing population creating a burden on the pension system, this is no longer seen as sustainable.
Why are people unhappy about the French pension reforms?
While it would be easy to characterise these strikes as delaying the inevitable, the proposals do mark a shift in policy that some consider a ‘point of no return’. France is famously fond of its protections for workers, and some critics have argued that the current proposals place certain groups at an unnecessary disadvantage. At a basic level, people who were planning to retire before 64 may now have to delay their decision, or risk losing 5% or more of their income.
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Some sectors, such as teachers, are concerned that the proposed changes to how pensions are calculated will leave them significantly worse off. Because pensions would be calculated across your 25 ‘best years’ rather than the salary you retire with, individuals who went through a period of unemployment or low earnings - often out of their control - could be penalised. Many people also feel that the groups covered under the special regimes deserve the benefits they confer, as they are often in labour-intensive or otherwise gruelling jobs.
There are also some concerns that the pension changes may affect women more than men, due to the gender pay gap and interruptions in women’s careers, such as pregnancy, parental leave and part-time work. The government has pointed to the fact that 25% of women are currently forced to work until 67, claiming that their average retirement age will fall to 64 under a more equal system. Critics however highlight that for the other 75% of women - particularly those on survivor’s pensions, where the age could be raised from 55 to 62 - will lose out.
What effect will the French pension reforms have on businesses?
Traditionally, employees in France have relied on two pension systems: the basic state pension, and a supplementary occupational pension. These supplementary schemes are based on collective agreements struck by France’s powerful unions, and are mandatory for all employers and employees in France. While some businesses also offer voluntary occupational pensions, these have tended to be confined to executives.
Instead of this, many companies have chosen to provide savings plans with an aspect of employer contribution. These plans have been incentivised with tax credits, providing up to a 10% bonus on their total revenue. These exist in both a five-year format and an ‘until retirement’ format, with a maximum annual contribution of 6000 euros. As of 2017, over 200,000 companies offered a savings plan to more than 1.5 million employees.
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With the fall in income from pensions and other aspects of pension reform, it’s possible that some more of the burden for pensions will be transferred away from central government and onto private businesses. This could mean further incentives for savings plans, but could also extend to growth in the private pensions market, which has been almost non-existent up to now. More businesses may find themselves offering attractive pension plans as an incentive for new employees, and a means of retaining talent over the long term.
Ultimately though, the impact should be positive. The ultimate goal of Macron’s government in its many reforms has been to address the sluggishness of the French jobs market, and the inefficiencies of French businesses. The changes to pensions will free up capital for the government, but they will also lead to people working for longer, and a more flexible job market in which employees are less entrenched in their positions.
How likely is it that the French pension reforms will pass?
It should be said that the reforms as they exist right now are only proposals. Consultations are ongoing, and the government is currently in the process of meeting with union leaders, not all of whom are totally opposed to changes. Some major unions have not participated in the strikes, while others have said that they would be willing for reforms to happen so long as they drop some of the more controversial elements.
The government has not helped itself by targeting the special regimes, however. While certain changes are exclusive to the special regimes, the core of the reforms will actually apply to everyone in France. By focusing on this one group, the government has not only intensified the impact of the strikes - many of those affected are transport workers - but has also been accused of misleading the public, and trying to hide the extent of the changes.
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Macron has characterised his administration by being resolute on strikes, and pushing through reforms in the face of opposition. This has broadly worked so far, but popular opposition is growing. However, it’s still likely that the reforms will pass eventually, perhaps with some concessions to the unions. Most people accept that something has to give with France’s pension system, as the country spends a higher proportion of GDP on pensions than anywhere else in the world. It only remains to be seen how much change Macron can get away with.
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