For more than a quarter of a century, there hasn’t been a French president who didn’t try to fix the country’s gigantic state pension system, and Emmanuel Macron is no exception. The 45-year-old leader, who was elected for a second five-year term in 2022, is trying to erase the system’s deficit and boost the economy by raising the minimum age to 64 from 62 for claiming a pension. And, like his predecessors, he is facing off against labor unions determined to thwart the changes using strikes and mass protests.
1. Why does Macron want to change the pension system?
In terms of how it works, France’s public pension regime is hardly unique in Europe: Levies on workers and employers pay the pensions of the retired population. The problem is that French people spend less time working, and more time in retirement, than most of their European peers, leading to funding shortfalls that increase the public debt. And an aging population is making the problem worse. Without change, the national pension deficit could balloon to as much as 0.8% of annual economic output over the next decade, according to the country’s Pensions Advisory Council. That’s a liability the government can ill-afford in a country that already has one of the highest public debt burdens in Europe.
2. What’s the government’s plan?
France’s minimum retirement age of 62 is one of the lowest in Europe. On average, French women spend 26.7 years in retirement and men 22.2 years, compared with 21.4 years and 18.4 years in Germany. Raising the minimum age to 64 and increasing the minimum period of contributions to access a full pension will eliminate the system’s deficit by 2030, according to the government. That would ease pressure on public finances, allowing the government to invest more in digital technologies, fund the transition to a low-carbon economy and boost employment and growth. Raising the minimum retirement age could also improve low employment rates among older workers, as previous pension overhauls did. Politically, Macron has little to lose as he can’t run for a third term. And he’s determined to seal his legacy as a pro-business reformer and score a win for his centrist movement against populists of the right and left.
3. Why do unions oppose the changes?
Labor organizations say adjusting the age thresholds will unfairly hit the low-skilled and the least wealthy who began working earlier in life. Even one of France’s more moderate unions, the CFDT, came out against the plan and united with more radical organizations to organize repeated strikes and protests to kill the measures. Unions say there are better ways to boost employment among older workers and rebalance the system, including tax increases — which Macron has ruled out. The government offered carve-outs so that some workers can still retire at 62 and a pledge to bump up the minimum pension for the least well off. That wasn’t enough to appease the unions.
4. How could the protests affect the economy?
The last time Macron pushed a root-and-branch pensions overhaul in 2019, it triggered some of the longest strikes in French history. The walkouts came on top of the “Gilets Jaunes” (Yellow Vests) protests against his proposal to increase fuel taxes, which blocked roads and fuel depots and led to some of France’s worst riots since the student protests of May 1968. The current backdrop is hardly better, as businesses and households struggle with the hottest inflation since the 1980s and economic growth languishes close to zero. Yet past experience may give Macron the confidence to stare down the unions. The unrest of 2019 did little to dent growth and, ultimately, it was the coronavirus outbreak — not the protests — that led him to hit pause on the pension reforms. Prolonged strikes back in 1995 against changes to pensions and social security took only 0.2 percentage point off one quarter of growth, according to national statistics agency Insee.
5. How is this likely to end?
The National Assembly began debating the reform in February. Getting the bill through parliament should have been straightforward as the conservative Republicans party has long advocated raising the retirement age and has enough seats to make up the majority Macron lost in elections last year. But their support wavered at the last moment despite a string of concessions. With the bill heading for defeat in the National Assembly, Macron triggered an article in the constitution that allows the government to turn a bill into law without parliamentary approval if it survives a vote of no confidence. In just such a motion, the opposition fell short of bringing down the government by only nine votes. The episode reignited anger, sparked more union-led protests and led to some violent clashes with police. Macron may still choose not to enact the bill later in the year, but has given no indication he’ll back down.
6. Is this just a French problem?
Hardly. The world’s population of people aged 60 years and older is expected to double by 2050, according to the World Health Organization, while fertility rates are in long-term decline. The financial strain is challenging old-age support systems and leaving many countries facing tough choices about raising the age of retirement, cutting benefits or lifting taxes. Pension shortfalls will be the equivalent of about 23% of world output by 2050, the Group of 30 consultancy estimated. One key measure is the old-age dependency ratio — the number of older people compared to the population that is working age. In Europe and North America, that ratio will be about 50 per 100 by 2050, according to UN forecasts, a rise from 30 per 100 in 2019. In short, we’re on a trajectory toward a smaller share of people paying taxes and a higher proportion drawing pensions. By 2035, the basic US system known as Social Security will no longer be able to cover payments, forcing a 20% reduction in benefits, according to its trustees.
--With assistance from Anchalee Worrachate.
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