The French pension system is generous compared to others, yet the French are rebelling. In other countries workers have to work much longer.

President Macron wants to raise the retirement age from 62 to 64. In many countries, especially in Germany, people shake their heads in wonder, because for them the limit is higher. “It is always difficult to compare pension systems because they are complex and very different. This comparison is simply skewed,” argues Ulrich Becker of the Max-Planck Institute for Social Law and Social Policy, which compares pension systems worldwide.

What is causing so much reaction in France concerns the earliest possible point at which workers can retire without pension reductions, provided they have worked for 45 years. In Germany this is done when the employee reaches 63 years of age. A pension without cuts and regardless of length of employment is also provided for in France only at the age of 67 – which will remain the case with the reform.

French pensioners are so far in a fairly good position compared to the international community if three factors are taken into account: the amount of the pension, the retirement age and the period of pension entitlement, i.e. life expectancy at the start of retirement.

Good chances of maintaining the standard of living in old age

The ability to maintain a standard of living in retirement depends on the so-called net pension replacement rate, i.e. what is left of the net income someone has received on average during their working life. In France, this was an impressive 74.4% in 2020, which would mean that anyone who received an average of €2,500 per month from their employer would receive around €1,860 in pension. The net pension replacement rate in France is 14% higher than the OECD average, while in Germany the corresponding rate is 52.9%.

The net pension replacement rate in France could decrease for many in the future because, in addition to the minimum age, the number of years of employment should also increase. This could particularly affect those on low incomes, because they are usually the ones who start working earlier. On the other hand, those who start paying pension contributions at the age of 25 due to studies are already 67 after 42 years of work and receive a full pension.

As a trade-off, however, the pension reform sees an increase in the minimum pension to around 1,200 euros for singles, which now stands at 961.08 euros, which puts France in the middle of the relevant OECD benchmark list. By the way, Germany is one of the few countries without a minimum pension.

However, low pensioners can apply for an increase. In many countries, people accept a reduction in their pension in order to leave work earlier. In France, men retire on average at 60.4 years, women at 60.9 years. At the same time, life expectancy is particularly high in France. Thus, looking at the period that former workers can enjoy their pension, only the Luxembourgers (24 years) exceed the French (23.5 years). Similarly, only Greek women (28.4 years) and Spanish women (27.7 years) exceed French women (27.1 years).

Pension system and population aging

But this is precisely one of the reasons why the government considered pension reform necessary, says Becker: “France needs to effectively adapt the pension system to demographic change.” For pension funds, the fact that people are getting older is a problem because the pension has to be paid for a longer period of time without the contributions having increased. In addition, birth rates are falling and, therefore, fewer and fewer workers are required to pay contributions for more and more retirees.

No pension system can survive solely on the contributions of the insured. And it’s not just tax-funded retirement models, as is the intention. In Germany, for example, the recognition of pensionable time takes into account the years of school and university studies, as well as raising children, and the amount is covered by the federal budget and not by pension contributions. However, many pension funds are also recording losses that must be covered with taxpayers’ money. And the more generous the pensions, and the less favorable the demographics, the larger these subsidies tend to be.

In France, government pension subsidies – as a percentage of GDP – are the highest in the OECD, after Italy. The head of Macron’s government, Élisabeth Bourne, said that “with the plan, we guarantee the financial balancing of the pension funds by 2030”.

In France, social cuts cause reactions

“An obvious and widely discussed solution is usually to raise the retirement age,” explains Becker. “So people pay more contributions and get a pension for a shorter period of time. The idea is to make some “correction” between the contributions and the pension being corrected.” This is exactly what some OECD countries have already done, such as the Netherlands, where the retirement age is 69, Estonia and Italy are planning to raise it to 71.

And in France? “What is overlooked is that the reforms are also intended to remove privileges for certain groups, which today seem rather arbitrary,” Becker points out. “The reason for this is apparently that the defense of social rights is considered more important than their fair distribution on the basis of generation.”

Jan Walter

Edited by: Giorgos Passas