France's President Hollande faces backlash over pension reforms

Reforms will mean bosses and workers paying more into debt-ridden system and may see most people working beyond retirement age of 62

PUBLISHED : Tuesday, 03 September, 2013, 12:00am
UPDATED : Tuesday, 03 September, 2013, 8:23am


The Socialist government's plans to reform France's debt-ridden pension system, to be presented to ministers this month, fail to address the core problems and could spark fresh tensions with Brussels, experts say.

Pension reforms are highly contentious in France, with previous efforts in 1995 and 2010 unleashing mass protests and damaging strikes.

This latest effort could be the biggest test yet for President Francois Hollande.

His government stuck to its promise not to increase the current retirement age of 62, as many other countries have done after Brussels' recommendation.

The reform plan, which will be officially tabled on September 18, avoids some of the more controversial proposals floated in recent weeks that included slapping a new tax on French retirees.

Instead, the government proposes that employees as well as businesses pay more every month to the retirement system.

It is a measure sure to raise eyebrows, with the cost of the generous social net already one of the highest in the world.

French businesses had campaigned against a rise in taxes or contributions, fearing the impact they would have on competitiveness. The French economy is grappling with record unemployment, a high cost of labour and a huge tax burden.

The plan also incrementally raises a French worker's contribution period from the current 41.5 years to 43 years by 2035.

This effectively means most people will have to work beyond 62 to qualify for a full pension.

The government said the measures would save the state's strained retirement system €7.3 billion (HK$74 billion) by 2020, with the books balanced by 2040.

But there is growing criticism that the reforms are not deep enough. HSBC Global Research said: "The measures are disappointing. They will only address the deficit of the general pension scheme for private sector employees, not that of the overall pension system."

It said the pension system would be "still in a deficit of €13.6 billion in 2020 … even if all the measures announced are applied."

A total of 62 per cent of French people said they were opposed to the reforms, in an opinion poll published on Saturday.

And 67 per cent said they felt the proposals were not "fair".

Pierre Gattaz, the new head of Medef - France's largest employers' confederation - said the plans amounted to zero.

"This is a dangerous reform that is not acceptable to us. In reality, it is a non-reform. No structural problem is resolved," he told Le Figaro newspaper. The European Commission, the EU's executive arm, had asked France to raise both the minimum and full pension ages and to review many exemptions in the system.

HSBC Global Research warned that "the European Commission could tell France that the proposed reforms do not go far enough," as the plan "addresses the pension deficit through tax hikes rather than spending measures." It also said the contribution period would only be extended from 2020 and therefore not help the government to achieve its public deficit target this year or next or to reduce the structural deficit until 2020.

Finance Minister Pierre Moscovici sought to douse fears last week by saying that the rise in employers' contributions would be offset by cuts in family welfare schemes from next year.

French unions have been divided. The Democratic Confederation of Labour sees the reforms as "even and moderate".

But the more vocal General Confederation of Labour has threatened strikes and protests on September 18 when the proposals are presented to government ministers.

The French parliament will get the chance to consider the measures next month.