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French Govt Approves Measures to Narrow Pension Deficit

France’s government today approved a series of measures to cut losses at the state retirement system by extending the working life of the French and raising some social charges.

The package, announced in late August by Prime Minister Jean-Marc Ayrault, increases some social charges and lengthens the number of years of work required to achieve a state pension.

“This is an important progressive step that assures the financial future of the retirement system,” Social Affairs Minister Marisol Touraine told reporters in Paris after today’s weekly cabinet meeting.

Cutting losses at the retirement system was one of the conditions when the European Commission last May gave President Francois Hollande’s government two extra years to hit deficit targets. While the commission is still studying the pension reform, it has suggested that plans don’t go far enough.

“There’s always the question whether the glass is half full or half empty” with France, European Economic Commissioner Olli Rehn said Sept. 13 in Vilnius, Lithuania. “France is going into the right direction in terms of economic reforms but there is still much more to do.”

‘Uncontroversial’ Measures

Without touching the official retirement age of 62, the measures raise the effective retirement age as French workers will have to contribute to the system for 43 years in 2035, up from 41 years currently. Contributions by both employees and employers will increase starting next year, though the government will reduce other payroll charges in an effort to contain labor costs.

“The relatively uncontroversial character of the proposed measures will probably allow for a rather smooth approval process of the law,” Antonio Barroso, an analyst at Teneo Intelligence, wrote in a note to clients today. “The reform is yet another example of the consensual and risk-averse policy style of President Hollande.”

The plans are aimed at eliminating the 20 billion-euro ($27 billion) deficit facing the pension system in 2020 and keeping its accounts in balance until 2035, when the impact of the postwar baby boom will begin to fade. The parliamentary debate on the measures will start on Oct. 7, according to government spokeswoman Najat Vallaud-Belkacem.

The plans don’t touch the more generous so-called “special systems” in place for electricity and railroad workers, among others.

Touraine today defended the government’s work.

“For too long in this country we’ve acted as if reform rhymes with brutality,” she said. “This is a reform worked out through consultation.”

To contact the reporters on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net; Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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