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What does the government really want to do with these pensions? An analysis by Bernard Laurent and Kévin Parmas, of the EM Lyon Business School, and published by The conversation.
The President of the Republic Emmanuel Macron is currently in defense the project pension reform in the name of fidelity to the commitments made during the 2022 presidential campaign. The outgoing head of state then proposed a progressive extension of the retirement age retired at age 65. About 9 months after her re-election, on Tuesday 10 January, Prime Minister Élisabeth Borne presented the text outline which in fact provides for a postponement of the legal age, but lately to 64 years. According to the head of government, “our pay-as-you-go system will then be in balance”.
However, in April 2019, Emmanuel Macron stated the exact opposite, as the opponents of the reform are not failing to underline today, who have they parade en masse throughout the territory Thursday 19 January. In fact, the current system does not need any reform to keep itself in balance, as we have pointed out in a previous one item.
In fact, according to the latest estimates by the Pension Orientation Council (COR) published in September 2022, the system generated a surplus of 900 million euros in 2021 and 3.2 billion in 2022. It should therefore record a deficit of around 10 billion euros a year until 2032.
However, the Committee’s recent predictions have been belied by reality: the reported deficits for the years 2021 and 2022 they were therefore not respected. Furthermore, the Committee’s projections are based in particular on an increase in the working population which would follow the same trend observed between 2006 and 2019, 123,000 on average per year.
However, this figure could be raised back to the rates seen between 1990 and 2005, or about 173,000 more people a year in the labor force, which would avoid asking workers to work longer. Three levers could be activated: immigration, the employment rate of young people and the employment rate of the elderly.
Trends that can be reversed
With regards to immigration, the Committee estimates between 62,000 and 87,000 net entries into the labor force per year. This balance has dried up in recent years, notably due to a tightening of migration policy, having exceeded 100,000 between 2001 and 2006. A loosening would therefore allow for an increase in the number of taxpayers and the amounts that would go into retirement funds every year.
The government could also adopt policies to improve youth participation in the labor market. Remember that today France has one of the highest unemployment rates for people under 25 in Europe: 18.3% as of November 2022compared to an average of 15.1% in the euro area.
The employment rate of the over 55s could finally strengthen: at the end of 2021, only 56.1% of 55-64 year olds were employed. There is therefore a real leeway to address it enhance the skills of the elderly together. Not to mention that, due to previous reforms that lengthened the duration of contributions, this one the rate has already been increasing mechanically for 20 years.
The Committee is therefore sticking to trends that could be reversed in the long term with certain economic policy measures.
Life expectancy is stagnant
During the 2022 electoral campaign, the presidential candidate also argued that it was necessary to “work harder” and “longer because we live longer”. However, this thesis of lengthening the duration is contradicted by recent data which teach a different lesson. In fact, if before 2014 we gained 1 year of life every 4 years, since then nothing has changed, with a little month earned in 8 years.
If tomorrow there were a sharp increase in life expectancy, why would we not agree to agree, without affecting the other parameters of the regime, the automatic nature of an increase in the duration of contributions, in line with the reality of the situation?
Currently, despite the increase in life expectancy only minimally, the lengthening of the contribution period in order to receive a full-rate pension is still well and truly envisaged in the context of the reform. Prime Minister Élisabeth Borne had thus introduced her press conference to present the project, on Tuesday 10 January, at this point. However, the previous reform of 2013 had already raised the annual contribution required for generations after 1973 to 43 years.
Rather than concentrating efforts on further lengthening the contribution period, the government could then implement a policy of increasing the working population as described above. Or choose to have pensioners contribute (of which the standard of living is now higher than that of the workers) by taxing higher pensions. President Macron could therefore give concrete content to his intention, formulated during his first mandate, in 2018, to “reinventing” the welfare state.