Interview

Pension reform: "We can not do it, but we must bear in mind what the impact will be"

Labor Minister Olivier Dussopt alongside Prime Minister Élisabeth Borne at the Élysée Palace on July 13, 2022. AFP - LUDOVIC MARIN

Text by: Ariane Gaffuri Follow

6 mins

With its pension reform presented this Tuesday, January 10, the executive hopes to make 8 billion euros in savings and 15 to 20 billion euros in additional tax revenue in 2023. How does France compare to certain countries in the OECD?

Hervé Boulhol is responsible for pensions at the Organization for Economic Co-operation and Development (OECD).

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RFI: The retirement age would be pushed back, from 62 to 64, in France to make up for the hole in the pension system estimated at 20 billion euros by 2032, according to the Pensions Orientation Council (COR ).

What about other OECD countries? 

Hervé Boulhol:

On the age of opening of rights, on average in OECD countries, we are around 62 and a half, so France is slightly below.

On the other hand, it is true that the countries have already legislated a fairly significant increase, of the order of 1.5 years on average, in the age of opening of rights, so if France does not carry out this reform, the gap will widen.

Then, whether it is the age of opening of rights or the duration of contributions, there, it is an eminently political discussion because there are significant redistributive impacts.

According to the COR, the pension system is currently in surplus, by more than 3 billion euros in 2022, but will only be in deficit by 20 billion in 2035. So there is no urgency?

This time we recognize that there is a deficit that is forecast for the next 20 or 25 years, of course, it is not significant, but this deficit is cumulative, and if nothing is done, we then have an amount of debt that is not insignificant either.

So how do we deal with that?

We know that there are three major parameters: either we increase resources, typically contribution rates, or we lower the level of pensions, or we increase the effective retirement age.

In France, in international comparison, it is rather on the third factor that we have to play, therefore the effective age, and then, it is how we increase this effective age which refers to the question of the duration of contributions or in particular the age of opening of rights.

Raising the legal retirement age or the contribution period, which parameter would be the most effective

We are about 42 years old today in France for a full pension.

We will increase to 43 years.

It's already planned by 2035. You just have to know that with 42, 43 years, France is really in the average of the countries.

There are only nine OECD countries that have these double conditions on the contribution period.

It's 38 and a half years in Spain, 40 years in Slovenia and Greece, 45 years in Germany.

With 43 years, France will be in the middle, so we can increase of course, but I believe that the issue between the age and the duration of contribution, it is a redistributive element.

You have to keep in mind that the age can be wider, that is to say that it potentially affects special schemes and the long career scheme, so it has more impact.

And beyond the purely question of the pension system, if we consider,

It would seem that the employment of seniors poses a problem in France, whereas they would be, with this reform, forced to work longer without necessarily finding a job

.

This is a problem, but what is not emphasized enough is that this is an area in which France has achieved quite spectacular results, because when you look at the employment rate of 55- 59 years old, we have gone from about 50% 20 years ago to 75% now, so it is one of the successes of the economy in France.

We were very well below the OECD countries, we are now slightly above for 55-59 year olds.

On the other hand, for the 60-64 year olds, there has also been a spectacular progression, in particular with an acceleration when one goes from 60 to 62 years on the retirement age, we experience a very strong acceleration from 2010, but we really remain, with 35% of the employment rate of around 60-64 year olds, clearly below the average for OECD countries.

So on that,

There is indeed this difference between France and the other OECD countries, but is this pension reform absolutely essential, as the executive says?

France is not on the brink of the abyss as Italy, Portugal and Greece were, for example, at different times, but precisely the purpose of these reforms is also to avoid, or in any case to limit the risk , that we can find ourselves in this situation one day, that is the first point.

The second point is that indeed, according to the projections, there would be a deficit that will last for at least 20, 25 years which is not colossal, but even if we take a deficit of 0.6 point of GDP for example, it's not huge, but 0.6 point of GDP is every year and what is important is that it is cumulative.

So if we accumulate, for example, 0.6 points of GDP over 25 years, that makes 15 points of GDP, so that's debt.

And you have to see, for example, that the impact of Covid-19,

it is to have increased the debt by 15 points of GDP, so we have to put things in perspective.

We may not carry out the reform, but we must bear in mind what the impact will be.

15 points of GDP is very important, of course.

What else could we do other than have a parametric change of 64, 65 years?

An alternative measurement scenario to avoid asking the question again every ten years is precisely to link age to life expectancy.

When life expectancy, at 60 or 65, increases, and very mechanically, the age of entitlement is increased, not 100% of course, it can be 50, two thirds, three quarters.

There are nine OECD countries that do this, Sweden joined this group last year.

This allows for less heated debates, less erratic and more equitable measures from one generation to the next. 

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