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Pensions at the heart of the presidential election: but how does the French system work?

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Along with purchasing power, the reform of pension schemes seems to be one of the main themes of the campaign between Marine Le Pen and Emmanuel Macron, both qualified for the second round of the presidential election. Back to a system at the heart of the political debate. While Emmanuel Macron and Marine Le Pen are eyeing the voters of Jean-Luc Mélenchon who could tip the second round of the presidential election, the issue of pensions, a complex subject at the origin of major social movements in France, has become a central question of the campaign between the two rounds, in the same way as purchasing power. Indeed, the day after the first round, during his trip to the north of France, the outgoing president seemed to soften his position on the subject, hinting that he was ready to make concessions on one of the pillars of his program. Specifically, he said he was ready to review his plan to gradually raise the retirement age to 65, citing a retirement age of 64 – against 62 today. A first compromise which says a lot about the importance of the theme, while its rival, after having long pleaded for retirement at 60, now defends a departure at this age only for employees who started working before 20 years old. To understand why the reform of the French pension system is such a sensitive political issue, France 24 looks at its model and its financing. A pay-as-you-go system Implemented in 1945, the French pension system is based on intergenerational solidarity between working people and retirees. The principle is based on the contributions paid by active workers during a year, which are used to pay the pensions of retirees for that same year. The system is based mainly on contributory status, i.e. a pensioner receives a pension which is calculated on the basis of the income from his previous activity, the contributions paid and the number of years spent working (expressed in quarters). However, the system is solidarity-based since it provides non-contributory retirement benefits, ie without payment of contributions, to those who have experienced a disrupted working life. The method of calculating the pension To obtain the best possible pension in all the pension schemes, that is to say a pension at the full rate, without discount, it is necessary either to justify a certain number of quarters of pension insurance according to year of birth and status (civil servant), i.e. retiring at age 67. For example, according to the current system, a private employee born between 1961 and 1963 must have contributed for a minimum of 168 quarters (42 years), while from the generation born in 1973, it is necessary to have contributed for 172 quarters (43 years). Pension scheme The basic pension, the supplementary pension and the supplementary pension are the three components of the pension system. The first two are compulsory, ie contributions are imposed on employees and their employers, while the supplementary pension is optional. Most working people contribute both to a basic scheme (up to the social security ceiling, ie 3,311 euros per month) and to a complementary or additional scheme, on all or part of their income. There are 42 pension schemes, with often very different rules for calculating contributions and pensions (general scheme, agricultural social mutuality, social scheme for the self-employed, special schemes). Retirement and retirees in figures According to the latest figures on retirees and retirement from the Department of Research, Studies, Evaluation and Statistics (DREES), the statistical service of the Ministry of Health and Solidarity, updated in May 2021, as of December 31, 2019, the average current retirement age continues to rise and has reached 62 years and 2 months. Men retire on average 7 months earlier than women: 61 years and 11 months compared to 62 years and 6 months. At the end of 2019, 16.7 million people, living in France or abroad, were registered as direct pensioners from at least one French scheme. Including so-called “derived rights” retirees, who receive survivor’s pensions (from a deceased spouse), the total number of retirees, all schemes combined, is 17.8 million people. Still according to the DREES, the average pension under direct entitlement, all schemes combined, for retirees residing in France is 1,393 euros per month after social security contributions. Funding pensions The financial balance of the system depends on the ratio between the number of contributors and the number of retirees. It evolves in particular according to the growth rates of income and the working population. Withdrawals to finance pensions currently represent almost 31% of the income of working people. And 75% of the financing of the pension system comes from social security contributions. The rest of the resources are made up of tax revenue, in particular taxes and assigned taxes and the CSG and transfers from third-party organizations, such as unemployment insurance, under the principle of financial solidarity. “First item of social expenditure” , public and private, according to DREES, retirement pensions represent 327.9 billion euros in 2019, or 13.5% of gross domestic product (GDP). A system in danger? Despite the political debate on the sustainability of the system, the Pensions Orientation Council (COR) indicated last June that spending remained “on a controlled trajectory”. Spending should even stabilize at 13.7% of GDP until 2030 and decline thereafter. “We can completely consider that it is too much… or not enough, had confided the president of the COR, Pierre-Louis Bras. It is a political choice”. According to the COR report, the health crisis had “very massively” widened the system’s deficit in 2020, to around 18 billion euros, before it was reduced to 13 billion following an “exceptional transfer” of reserve fund resources. Taken as a whole, the schemes should show a deficit of between 7 and 10 billion euros in 2021, for around 340 billion in cumulative expenditure. In summary, according to the COR, the pension system will not be balanced before 15 years at best, according to its projections. The fact remains that from 2030, and until the beginning of the 2060s, the share of pension expenditure in GDP would fall in all the scenarios imagined by the COR. By 2070, the share of pension expenditure would even be lower than that observed in 2019, before the health crisis. And this, too, in all scenarios. A system in need of urgent reform? According to the unions, the latest results contradict the urgency of a reform of the pension system. The pension branch of Social Security ended 2021 with a deficit of 2.6 billion, while the budget voted in December expected a hole of 5.8 billion. In the private sector, the regime for executives and employees (Agirc-Arrco) even shows a surplus of 2.6 billion which has enabled it to replenish its reserves. However, some schemes remain in a delicate position, in particular that of territorial and hospital civil servants (CNRACL), which expects its deficit to triple from 1 to 3 billion euros by 2025.

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