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French pension reform: Unfair and unsustainable

1 November 2010
by Guest author
 
 

Today’s post comes from Pierre Habbard of the Trade Union Advisory Committee to the OECD  (TUAC) in reponse to the article by Fiona Stewart of the OECD  Financial Markets, Insurance and Pensions Division on the strikes in France.

 

Fiona Stewart seems to suggest that any reform (i.e. the French government pension reform) is a good one and that anyone who opposes such reform (i.e. the French labour movement) is opposed to any reform whatsoever. The French unions are not opposed to reform as such. They are perfectly aware of “the scale of the challenge of paying for our pensions”. They just happen not to agree with the direction taken by the government.

In fact most of the French unions would be ready to support the current reform process if only there had been some room for negotiation. But negotiation with unions never really happened; instead the French government simply rushed through the parliamentary process.

Based on the two criteria that really count when discussing pension reforms – financial sustainability and fair risk sharing – the French reform isn’t a good one. The goal of the reform is to reach financial balance in the system in 2018. Not only will this deadline be missed, but as a result of the reform, the much valued French pension reserve fund – the Fonds de réserve des retraites (FRR) which was set up in the late 1990s to prepare for the demographic change after 2020 – will be spent completely by then. What will happen after 2018, nobody really knows.

This reform will not make the French PAYG more robust financially in the long run. It is a reform that was prepared in haste to appease the sovereign bond markets and the credit rating agencies in the short term.

It is also an unfair reform. It puts all the burden on the lower income households and on blue collar workers, because it is based almost exclusively on raising the retirement age on full pension from 65 to 67(and not from 60 to 62 as widely reported), which is only one among many pension parameters. At the same time, the reform does little to increase the rate of participation of people aged 55 to 65 in the workforce, which is fundamental to any PAYG scheme’s sustainability. France has one of the lowest participation rates for this age group in the EU, not to speak of the OECD. And yet and the reform does little to “arm twist” the French employers to act decisively in that respect.

In effect, this reform will transfer the financial burden of the inactivity of people aged 55-65 from the pension system to other government welfare programmes, be it unemployment schemes or targeted social safety nets.

Useful links

OECD Employment Outlook 2010: Moving beyond the Jobs Crisis

After the crisis: towards a sustainable growth model from the European Trade Union Institute

2 Responses leave one →
  1. November 1, 2010

    “But negotiation with unions never really happened…” Because the CGT adopted an unbelievably hard line from the start. Theirs was the old tactic of claiming that they were held hostage by their constituency. Which was nonsense, as their constituency is weak and waning. The fact is that their tactics were foolish. Declaring a week of actions before a major holiday, ça ne se fait pas.

    The bigger problem is that the opposition in France arrogates to itself silent majorities of support that simply do not exist. The PS and the wider French left absolutely deserves the drubbing they’ve received and will receive again in the near future–they are empty of anything but fruitless criticism and posturing. Tell me, where was the CGT a year ago when the first reforms were proposed? They let public sector workers not represented by their union march in the rain. Who can blame these same workers for not turning out for the ill-organized nonsense that took place last week?

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