Will President Macron increase the retirement age to 64 in France before next year’s election?

“Chase your passion not your pension” – Denis Watley

In the aftermath of what the French media calls “the failed regional elections”, President Emmanuel Macron might plan to accelerate certain reforms. Behind the scenes, ministers are pushing the President to reopen the pension reform file and to set a mark before the presidential election in 2022. The original reform announced in 2018, which resulted in violent demonstrations known as “yellow vests”, suggesting a universal point system, will probably be postponed. But another measure is currently discussed: increasing retirement age from 62 to 64.

The advantage of immediately implementing selected measures would rather be political. The élysée wants to advance with the standstill trials. Last week’s published Tirol-Blanchard report emphasized that a new pension system needs to be built. The Nobel laureate Jean Tirole and the former chief economist of the IMF Olivier Blanchard plead for a pension reform which is comprehensible to everyone and which does not ignore the most modest. However, a reform on such a sensitive topic is unpopular on many sides: unions, a big part of the population and of the political spectrum oppose the idea of increasing the retirement age.?

The background:

The original overall objective of the French pension reform was to create a universal system. It aimed to ensure that "each euro contributed offers equal rights", independent of profession and status. It was supposed to imply a harmonization of calculating methods for pension eligibility, and should substitute all current existing pension schemes (42 different ones) in favor of a single system.

Pension rights should no longer be calculated in quarters but in points. This calculation method exists already for supplementary pension schemes Agirc-Arrco (applied to former private sector employees). The initial bill states that "each hour worked will be converted into points". For periods of inactivity, solidarity points should be awarded, e.g. for unemployment, sickness, disability and maternity.?

The points would be acquired based on a single contribution rate - self-employed represent an exception – which has been set at a rate of 28.12% up to an annual income of 120,000 euros gross, adding a non-eligibility contribution of 2.81%. In order to calculate pension requirements every single year of an entire career should be considered in contrast to the current last six months of employment for civil servants and the 25 most favorable years of employment for employees.

To obtain the worth of a pension benefit, two values would be applied:?

1.??????the purchase value (the amount the contributor must pay to acquire a retirement point) and?

2.??????the service value (the number by which the acquired points will be multiplied to obtain the amount of pension payment).?

The original bill states that "the acquisition value of the points will be fixed by the Board of Directors of the National Universal Retirement Fund each year". The same rule applies to the service value.??In order to ensure that the point value will not decrease, it would be indexed on wages, and not on inflation. However, the decision of which indicator would be applied remains open.

Nevertheless, the proposed system involves the creation of a bonus malus system. For a contributor leaving work before the official retirement age a decrease percentage of his/her pension would be applied (approximately 0,42% per month).?

In the future,?in order to?validate an entire career allowing for an 100% pension payment entitlement, it will be necessary to validate 516 months (43 years). According to the INSEE statistics, it can be assumed that the pivotal age will increase by one month per generation. However, these projections depend on life expectancy which cannot always be expected to be linear. Above ideas have been suspended for now. The current measure on the agenda is an increase in retirement age from 62 to 64.

For those who do not know the current employee pension system in France, please find below a short summary:

In France there are 4 different levels of pension coverage. There are multiple regimes and organizations which administrate public and private pensions. The main pillars for employees working in the private sector are the three following mandatory pension plans:

CNAV (Caisse nationale de l’assurance vieillesse de salarié du privé)

AGIRC??(Association générale des institutions de retraite??des cadres)

ARRCO (Association pour la retraite complémentaire des salariés)

In addition, supplementary systems as “article 83” and “PERCO” allow the employee to constitute additional savings on a private level benefitting from tax reductions.

The basic pension (CNAV) is the main pillar in France. The system is based on the repartition of contributions between generations. Contributions as well as benefits are defined but are subject to ongoing reforms.?

The legal age which makes an employee eligible to official pension is 62 for those who are born in 1955 and after, whereas for those born before 1955 it is still possible to retire between the age of 60 and 62. In future they might have to wait until the age of 64.

In order to be eligible to 100% of pension allocations one must have contributed from 160 to 172 quarters. Everybody born as of 1973 will have to contribute for 173 quarters into the official pension system representing 43 years and a quarter for an entire career. Pension entitlements are calculated at a 100% achievement rate as of the age of 65 and 67 depending on the year of birth.?

Pension contributions to the Caisse Nationale d'Assurance Vieillesse (CNAV) are paid on “Tranche A” which is capped at € 41 136 gross p.a. for the employer (part patronale) and for the employee (part salariale). The employee will only achieve 100 % of pension entitlement before the age of 65 when s/he has obtained the number of required quarters. Otherwise deductions in pension payments will be applied.

In addition, contributions to a complementary pension plan l’Arrco (Association pour le régime de retraite complémentaire des salariés) and l’Agirc (Association générale des institutions de retraite des cadres)?are paid for managers and employees as of a certain salary grade within the private sector. Contributions follow the same rules as those for the basic pension plan:

The contributions are capped on an annual income level of € 329?088 gross p.a.. This amount is divided in tranche A, B and C . Contribution levels differ from one tranche to another.?

In France pension entitlements at a 100% achievement level represent between 30 and 50% of the employee’s last gross salary.??

Within all the discussions of reforming the French social security system and insuring funding for pensions, one should not forget that the overall goal of the government should remain the fight against unemployment and the creation of jobs. Only those who are employed will pay social taxes and insure that social security funds remain available. When full employment for everyone can't be guaranteed an increase of pension eligibility to the age of 64 will not help to solve the issue. Please refer to my article: https://www.dhirubhai.net/pulse/bringing-new-dynamics-french-labor-market-marion-endter/?trackingId=IEPcPf9jvs2hP3fC56m36w%3D%3D