6 December 2019

Too much, too late – why Macron’s pension reform is in trouble

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Former French prime minister Edgar Faure liked to say that “France is always early to revolt, because it is always late to reform”. That might be a touch exaggerated but it’s true that France is a country in which reform is always undertaken with a heavy heart, and accompanied by strikes and demonstrations.

That’s exactly what we are seeing right now with Emmanuel Macron’s attempts to reform the country’s pensions system. We are now entering the second day of massive nationwide strikes and protests that have paralysed swathes of France and led to violent clashes in several cities.

In France, reform is always extremely hard work, for both cultural and institutional reasons. On the cultural side of things, France is not an ‘anglo-saxon’ country where people take much interest in commerce. As Robespierre explained at the time of the Revolution, in France civil society and the economy are framed by politics, which is in turn framed by morality. In France, politics occupies the high ground and lords it over civil society.

Finance and economics are viewed dimly, which explains why the French tend to be uneasy with either. My compatriots generally prefer philosophy, sociology and political science. It follows that for many of them putting in place an efficient pensions system is anything but an obvious idea.

As for institutions, France is an extremely centralised country in which the unions have relatively few members and parliament wields little power. As a result, there is an intense relationship between the French people and their president, one which inherently lends itself to hysteria. That’s exactly where the country has found itself since the explosion of the gilets jaunes movement a year ago.

Pensions reform could scarcely avoid falling into the same trap. During his campaign for the presidency, Macron promised to put in place a points-based system like the one in Sweden. At the moment France has a complete hodge-podge of a system, with 42 different pensions scheme. Some are exceptionally generous – train drivers, for instance, can retire at the age of 52.

Macron’s plan is pretty straightforward: everyone gets a points total based on their contributions, which themselves depend on both salary and number of years in work. When someone decides to retire, their pension payments are calculated on the basis of how many points they have accrued. The value of the points themselves is fixed by either the government or its partner organisations to ensure the scheme remains financially balanced. That value rises in line with the growth rate of the economy, which is itself determined by demographics.

The beauty of the system is that individuals can retire when they like and get a pension that corresponds to how long they have worked. If they want to stay in work longer and enjoy a better pensions, so be it. If they would rather retire early on a more modest pension, that’s fine too. The authorities would, of course, have to provide clear and precise information about the implications of that decision for the individual concerned.

The points-based pensions system has three main advantages. First, it gives individuals a great deal of autonomy. They can choose if they want to retire at 58 or 80. Second, it offers obvious incentives. Someone who retires at 65 will get a better pension than some one on the same salary who decides to pack it in aged 60.

Finally it’s a single system, which provides simplicity, equality of treatment and, above all, transferability. Someone working in a big business who decides to become a tradesman and finishes up working in local government would never have to change system. They would carry on accumulating their pension points based on their remuneration.

So, the logic behind Macron’s reforms is certainly sound. However, he has fluffed the execution for two reasons. First is that he has left it too late in his presidential term to undertake such substantial changes. In France and elsewhere, experience suggests governments only get a window of between and 12 and 18 months to enact serious reform. After that they no longer have enough political capital to expend on changes that risk losing public support. That’s certainly the case when it comes to these pension reforms.

The second reason Macron is in trouble is that neither he nor the parliamentary wing of his En Marche party have failed to lay the groundwork or properly explain what they are trying to do. The French public is baffled by Macron’s plans, which is contributing to the heightened anxiety which is fuelling the current chaos.

But for all these difficulties, do not despair of France. Even here, reform does get done eventually. Things are going in the right direction, but it will be a long journey.

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Nicolas Bouzou is a French economist and journalist whose work has appeared in Le Figaro, L'Express and Le Monde