Recently, strikes and social actions sponsored by the left and far-right political parties and unions have seized France in protest against President Macron’s proposal to raise the retirement age in state pensions from age 62 to age 64. Macron seems determined to carry this policy through to implementation later this year. In this blog, I provide context for this issue, briefly describe the current system, review past changes, and explain the need for further reform.

The French pension system is complex, with different layers of benefits and plans (42 in total) depending on sector of employment, profession, level of earnings, and so forth. Taken as a whole, it is generous, expensive, and, unlike the US, has essentially no private-sector counterpart, neither in the form of private pensions nor employer-sponsored accounts. According to the OECD, in France, the average income of the over-age-65 population is nearly equal to the average disposable income of the total population. This ratio has increased somewhat since 2000 (it even exceeded the total population average during the pandemic years), and is higher than found in comparable advanced countries. The state pensions replace more than 70 percent of pre-retirement earnings for the average worker; by contrast, US Social Security replaces about 40 percent of earnings for the median worker. French pension benefits in aggregate currently come to about 15 percent of French GDP, according to the 2021 Ageing Report of the French Government, up from about 14 percent a decade ago, despite repeated past reforms (summarized below). It is projected to increase further to 15.6 percent of GDP through 2032 under current policy before beginning to fall (again owing to past reforms). The required contribution rate on worker earnings to support this system is about 27 percent for earnings up to a level of about nine times average earnings. These payroll taxes in total represent about 12 percent of GDP; the system is also supported by various other taxes.

The current retirement age in the French pension system is 62, raised from 60 in 2010. There is a small benefit penalty if the worker does not have a full career, and the extent of the penalty depends on the worker’s cohort and length of career. People who started work at young ages as well as government workers in “active service” like police and nurses have earlier retirement ages, generally their late 50s. Additionally, since 1993, there have been successive reforms every few years, with changes almost entirely on the benefit side, generally reducing the generosity of the pension program, with only occasional temporary small payroll tax increases. For example, lower price-indexing replaced higher wage-indexing for benefit computations, reference contribution periods for full benefits have been lengthened, means-testing of minimum benefits was introduced, rationalization of benefit computations was entered for those with pension credits across several employment sectors, and some reductions in payment indexing, and benefit accruals in various sectors were enacted.

President Macron already proposed pension reforms before the pandemic, to combine all 42 state pension schemes into one. He now wants to raise the retirement age to 64, increase and standardize the reference contribution period for a full pension to 43 years. The stated motivation for these benefit cuts is that a near-term deficit for the system has opened up and needs to be closed without raising taxes or reducing base benefit levels at retirement. The 2021 Ageing Report notes the financial deterioration since the 2018 Report caused by the pandemic, as well as other longer-term trends—higher life expectancy, lower birth rates, and lower economic growth. The working age (20 – 64) population in France is now projected to continuously decline over the next fifty years. Indeed, the long-term finances of the French pension system are quite sensitive to future birth rates.

These issues are obviously directly important to the development of the French pension system, and, by extension, the French government budget, labor market, and economy. More immediately, it seems that President Macron has tied his political effectiveness to a 2023 implementation of these reforms. Given that American Social Security was influenced by European examples, perhaps the French reform may even have some impact on the current US debate about the inevitable changes in our system, including raising the retirement ages in the program.

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