1. Why does Macron want to change the pension system?
1. Why does Macron want to change the pension system?
In terms of how it works, France’s public pension regime is hardly unique in Europe: Levies on workers and employers pay the pensions of the retired population. The problem is that French people spend less time working, and more time in retirement, than most of their European peers, leading to funding shortfalls that increase the public debt. And an aging population is making the problem worse. Without reform, the national pension deficit could balloon to as much as 0.8% of annual economic output over the next decade, according to the country’s Pensions Advisory Council. That’s a liability the government can ill-afford in a country that already has one of the highest public debt burdens in Europe.
2. What’s the government’s plan?
France’s minimum retirement age of 62 is one of the lowest in Europe. On average, French women spend 26.7 years in retirement and men 22.2 years, compared to 21.4 years and 18.4 years in Germany. Raising the minimum age to 64 and increasing the minimum period of contributions to access a full pension will eliminate the system’s deficit by 2030, according to the government. That would ease pressure on public finances, allowing the government to invest more in digital technologies, fund the transition to a low-carbon economy and boost employment and growth. Raising the minimum retirement age could also improve low employment rates among older workers, as previous pension overhauls did. Politically, Macron has little to lose as he can’t run for a third term. And he’s determined to seal his legacy as a pro-business reformer and score a win for his centrist movement against populists of the right and left.
3. Why do unions oppose the plan?
Labor organizations say changing the age thresholds will unfairly hit the low-skilled and the least wealthy who began working earlier in life. Even one of France’s more moderate unions, the CFDT, came out against the plan and united with more radical organizations to organize repeated strikes and protests to kill the measures. Unions say there are better ways to boost employment among older workers and rebalance the system, including tax increases — which Macron has ruled out. The government has offered carve-outs so that some workers can still retire at 62 and a pledge to bump up the minimum pension for the least well off. That’s not been enough to appease the unions.
4. How could the protests affect the economy?
The last time Macron pushed a root-and-branch pensions overhaul in 2019, it triggered some of the longest strikes in French history. The walkouts came on top of the “Gilets Jaunes” (Yellow Vests) protests against his proposal to increase fuel taxes, which blocked roads and fuel depots and led to some of France’s worst riots since the student protests of May 1968. The current backdrop is hardly better, as businesses and households struggle with the hottest inflation since the 1980s and economic growth languishes close to zero. Yet past experience may give Macron the confidence to stare down the unions. The unrest of 2019 did little to dent growth, and it was the coronavirus outbreak, not the protests, that led him to hit pause on the pension reforms. Prolonged strikes back in 1995 against changes to pensions and social security took only 0.2 percentage point off one quarter of growth, according to national statistics agency Insee.
5. Can Macron get his plan through parliament?
The National Assembly began debating the measures in February. Although Macron lost his outright majority in a 2022 parliamentary election, the conservative Republicains party has said it could back the pension bill under certain conditions, giving him a large enough majority in the lower house. Failing that, he could still use a controversial article in the constitution that allows bills to pass without a vote. Doing that, however, could further anger his opponents and ministers have said they want to avoid such a provocation.
6. Could Macron still back down?
Recent history suggests it will take more than hostile unions to scupper Macron’s plans. His Socialist predecessor, Francois Hollande, made changes to the pension system in 2014 despite some union opposition. Before him, Nicolas Sarkozy followed through on a plan to raise the minimum retirement age to 62 from 60 after months of protests involving millions of people. Whether Macron makes a U-turn could depend on whether the unions can rally the wider population to their cause. Polls in late January showed the president may be losing the battle of public opinion, with a growing number of people considering the changes to be unnecessary, unfair and ineffective.
7. Is this just a French problem?
Hardly. The world’s population of people aged 60 years and older is expected to double by 2050, according to the World Health Organization, while fertility rates are in long-term decline. The financial strain is challenging old-age support systems and leaving many countries facing tough choices about raising the age of retirement, cutting benefits or lifting taxes. Pension shortfalls will be the equivalent of about 23% of world output by 2050, the Group of 30 consultancy estimated. One key measure is the old-age dependency ratio — the number of older people compared to the population that is working age. In Europe and North America, that ratio will be about 50 per 100 by 2050, according to UN forecasts, a rise from 30 per 100 in 2019. In short, we’re on a trajectory toward a smaller share of people paying taxes and a higher proportion drawing pensions. By 2035, the basic US system known as Social Security will no longer be able to cover payments, forcing a 20% reduction in benefits, according to its trustees.