French Unions, Business to Trim Pensions for Three Years

French unions and business leaders agreed to cut increases in pensions to 14 million private-sector workers to below the rate of inflation over the next three years, helping trim the nation’s retirement system deficit.

Companies and 18 million employees will also increase their payments into the pension system by 0.1 percentage point this year and next. Together, the measures will save 3.1 billion euros ($4 billion) by 2017, reducing the system’s deficit to about 5.5 billion euros, according to the Medef business lobby.

“There’s an effort on the part of companies because their contributions will increase slightly and there’s an effort for employees,” Labor Minister Michel Sapin said today on French television channel I-Tele.

The agreement shows how President Francois Hollande is seeking to trim French social benefits that are among the most generous in the world as he comes under pressure from his European Union partners to cut the government’s budget deficit and improve competitiveness.

Hollande is planning an overhaul of all state pensions in coming months for which options include delinking payouts from inflation and raising the retirement age. An increase in the retirement age would further reduce the deficit of the so-called “complimentary” private-sector pensions dealt with by the agreement reached between unions and the business lobbies late yesterday.

Pensions will increase 0.5 percent this year for executives and 0.8 percent for other workers under the accord, which has to be ratified by three out of five unions as well as three French business lobbies. The government expects inflation to be 1.8 percent in 2013. Increases in 2014 and 2015 will also be below the rate of inflation.

“Asking retirees to take a smaller revaluation of their income isn’t something we do happily,” said Jean-Francois Pilliard, a negotiator for Medef. “Nor is it with great pleasure that we ask contributors to pay more but we’re in an environment that demands tough decisions.”

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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