Pension reform in France: Bonjour tristesse

  • The current reform proposal in France has been met with considerable anger, seen as the end of savoir vivre. But the truth is that the reform barely goes far enough. The proposed increase of the statutory early retirement age to 64 years from 62 does not address long-term deteriorating demographic and funding prospects: There will still be 60 persons in retirement (aged 64 and older) per every 100 people at working age (between 20 and 63 years) in 2050. Today, the ratio is 49.2%.
  • The reform has other important shortcomings. Current pensioners will not be affected  unlike current workers (and future pensioners) who are already being stretched by falling real wages. The ‘special regimes’, under which employees benefit from more generous schemes, will be scrapped very slowly since the new less generous terms will apply only to new hires.
  • Without measures to adapt the working environment to the needs of an aging workforce, the reform might end up increasing unemployment in old age. Raising the retirement age could add up to 1.6mn people to the workforce in 2050, by when 22% of the workforce is set to be 55 and older. But given the prevailing ageism – with the unemployment rate for the age group 55-64 is 6.3% in France, more than twice as high as in Germany – efforts to integrate older workers must be doubled down.
  • To ease the financial burden on the pension system, the French government plans to raise the statutory minimum retirement age by two years from 62 to 64 by 2030, and to bring the already agreed upon increase in the number of contribution years that are necessary to receive a full pension, from 41.5 to 43.0 years, forward from 2035 to 2027. The retirement age at which a full pension can be drawn regardless of the number of contribution years remains unchanged at 67.
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  • However, in an international comparison and given that retirees in France have one of the highest life expectancies worldwide, the reform steps seem rather modest. According to the latest CNAV data, in 2021, the average retirement age of a man in France was 62.7 years and that of a woman 63.2 years; it was 62 years and six months and 62 years and 11 months, respectively, for new AGIRC-ARRCO pensioners. Given the further life expectancy at the age of 63, that means the average French male retiree is set to spend 21.5 years in retirement while a female can expect to spend 25.4 years in retirement. For comparison, in Germany the average retirement age of a man was 64.1 years and that of a woman 64.2 years in 2021 and the average expected time spend in retirement was 18.6 years (men) and 22.1 years (women), respectively. In fact, France was the country with the highest share of public pensioners below the age of 65 of all public pensioners in the EU before the outbreak of the Covid-19 pandemic: In France, 42% were younger than 65 compared to 14% in Germany and the EU average of 26%.
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  • Furthermore, France is also the country with the second-highest public spending for old-age pensions within the EU, behind Greece. In 2020, the expenditures for old age pensions amounted to 13.0% of GDP in France compared to 10.3% in the EU on average and 9.6% in Germany. Without changes in the retirement age, the EU Commission estimates that the share of public pensions would increase to 15.5% by 2050.
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Sources: Eurostat database and Allianz Research
Michaela Grimm
Allianz SE
Ludovic Subran
Allianz SE
Andreas Jobst
Allianz SE