France Pension Reforms Dangerous Task For Hollande

French President Francois Hollande sits with Indian Prime Minister Manmohan Singh, unseen, as they sign agreements in New Del
French President Francois Hollande sits with Indian Prime Minister Manmohan Singh, unseen, as they sign agreements in New Delhi, India, Thursday, Feb. 14, 2013. India and France have reviewed progress in negotiations on a multibillion dollar deal for French fighter jets for the Indian air force and a separate agreement to set up the world's biggest civilian nuclear power complex in western India. (AP Photo/Manish Swarup)

By Catherine Bremer

PARIS, March 5 (Reuters) - Anxious to avoid the fury that greeted his predecessor's pension reforms, President Francois Hollande will ask more of old people to fix the hole in French retirement coffers but tread gently in doing so.

Even a softly-softly approach will mark the first time a left-wing president has dared to tamper with a system which is one of the sacred cows of France's model of generous welfare provision.

A plan in the works will likely leave intact the official retirement age of 62 but trim annual pension rises, buying Hollande time to try and coax people in their 50s and 60s to work a few more years, officials working on the project say.

Putting more of the burden on older people could stave off growing resentment among a younger generation who will otherwise spend their lives funding generous retirements, the like of which they will never enjoy.

A "reform by stealth" to nudge people to work longer could also spare Hollande the reaction that met former president Nicolas Sarkozy when he forced up the retirement age by two years in 2010, prompting street protests and strikes.

"The French hate the idea of touching the retirement age, it's sacred. And now is not the time for a 'big bang' structural reform -- the system is too stretched to find any compromise," one of Hollande's aides told Reuters.

Pressed on the issue recently, government spokeswoman Najat Vallaud-Belkacem vowed people would not be made to work longer.

Instead, the aim will be to repair the short-term funding gap with nips and tucks that could save a few billion euros a year and study ways to end an entrenched early retirement habit that costs billions more in lost output and contributions.

"It's no good changing the engine if you have no petrol. What we need is fuel for the system," the aide said.


Under the gaze of rating agencies and foreign investors, Hollande needs to fix a ballooning short-term pension deficit and prepare for a future where by 2060 the cost of each pensioner will be borne by 1.5 workers compared with 2.5 today.

A widespread practice of letting workers go early actually offers an opportunity as it leaves a big pool of people who could be padding the pot if kept in work rather than draining it.

While 30-somethings struggle to save, three in five 55 to 64-year-olds already have their feet up, including many public sector employees whose pensions are close to their final pay.

"It's a generational hold up. Today's 25-year-olds will pay all their lives for the fat pensions of others then find the pot is empty for them," said Emmanuel Grimaud, a pension consultant who advises a stream of people nervous about their retirements.

"If the youths out protesting in 2010 had any sense they'd have been shouting: raise the retirement age to 70 right now!"

Influential government advisors such as industrialist Louis Gallois, who inspired Hollande's 2012 competitiveness reforms, say persuasion is better than force.

More needs to be done to stop companies paying people off in their late fifties with a cheque to tide them over until their pension kicks in. Despite reducing tax incentives, the practice is still common.

The average person stops working at 60 versus almost 64 in other rich nations.

"The French leave the job market too early," Gallois told a recent meeting with foreign media. "If we could add three years we'd gain a huge capacity for wealth generation."

Given only 19 percent of 60 to 64-year-olds still work, the potential is high. A 2012 European Commission report concluded that even a small rise in old-age employment could substantially reduce France's pension burden, currently 14.4 percent of GDP.


France has a pay-as-you go pension system with a basic scheme for all and complementary company schemes. Unusually, all those schemes are state-funded.

Workers pay large contributions relative to other countries to underwrite a system that is generous to low-earners and public sector employees. Very few invest in private schemes.

Despite Sarkozy's reform, which means people must be 62 to get a full pension or 67 if they have not worked the statutory 41.5 years, the pot has been depleted by the economic crisis and a surge in unemployment to above 10 percent.

Even if jobs and pay recover, the COR pensions advisory council sees today's 14 billion euro ($18.18 billion) annual pension deficit hitting 20 billion by 2020 and swelling further through the 2030s as post-war baby boomer retirement peaks.

The COR's forecasts will be used by a panel of experts tasked with spending March to June drafting a reform that Hollande wants to present in July and pass into law for 2014.

Faced with the same problem of greying populations, other countries are enforcing retirement at 68 or above, or have switched to systems that self-adjust when contributions drop.

In France, trade unions oppose increasing the retirement age or the contribution period, as employers would like.

"We are seeing a social rift," said Philippe Crevel, head of the Cercle des Epargnants ("Circle of Savers") think tank.

"For executives, it's evident people need to work longer but for blue-collar workers it's a ghastly thought. If we raise the age for all there will be a massive split in the country."

Not only did Hollande oppose Sarkozy's reform, he partially rolled it back so that anyone working since before age 20 can retire at 60.

On his side though is a high birth rate which means France's working-age population will remain stable over the next 50 years, limiting the demographic crunch, as the European Union average shrinks by 15 percent.

His second weapon is a knack for easing through tough measures, as he showed when he convinced the nation to accept sales tax rises and spending cuts to bolster job creation.

A January survey by the CECPOP think tank found that while only one in four respondents agreed with a retirement age of 65, two-thirds fear they will struggle financially in old age.


While the cliches about lavish French retirements are not borne out by data showing the average person does worse than the developed-world average, rising youth poverty means old people are well off compared to the working generation.

Partly because of penalties if people work less than the full 41.5 years, French pensions average 60 percent of working-age post-tax income versus 69 percent for OECD-bloc countries.

Yet hardship among youths, one in four of whom is jobless, mean over-65s are relatively well off with incomes at 96 percent of the national average.

Trimming annual pension rises to a percentage point below inflation could save some 2.5 billion euros a year with limited pain, and at a time when many workers face pay freezes.

For the longer-term push to keep people working longer, the split between blue and white-collar workers, exacerbated by an archaic, complex and unfair pension system that pampers those who stay in one job for life, will come into focus.

Rooted in a time when more people worked in mines than in offices, a costly system of different regimes for haphazard groups of jobs like deep sea fishermen, midwives, bailiffs and sewage workers mean that for each 1,000 euros paid in, one person might get back 140 euros a year and another just 60.

Bus drivers get a pension of 2,500 euros a month while a self-employed farmer gets 900 euros. People in tiring jobs have the right to retire earlier and are loath to give it up.

"If they make me work longer it will kill me -- we're out here from 6 a.m. in all weathers," said Marc, 51, a street cleaner hosing down a Paris food market.

On the other side, executives are starting second careers as consultants or starting small businesses.

"I like to eat out and go to the theatre so I need to earn more money. Besides, I'm not ready to do nothing," said purchasing manager Michel Le Borgne, 66, fingering his retirement gift, an alligator-skin watch.

He tops up a pension that is half his old salary with odd jobs like managing piano recitals and buying and selling art.

In a hint of where France is headed, the average age people quit work has crept up by a year since 2005, and Hollande has already put in place a job-shadowing scheme offering firms incentives to keep on older workers to train youth apprentices. ($1 = 0.7702 euros) (Reporting by Catherine Bremer, editing by Mike Peacock)



French Pension Protests 2010