Our editorial opinion on the strikes and Macron’s universal pension reform
As SciencesPistes know all too well, France is facing a political crisis over pension reform gravely affecting our ability to travel around France and Europe. Mass demonstrations have now gone on for months, not letting up even for Christmas and New Year’s Eve. Strikes have disrupted the operations of both SNCF and the RATP bus and subway network, leading to more than €1 billion in losses for those companies. The strike in the transportation system has now ended, but the confrontation is far from over.
When Macron campaigned in 2017, he promised to replace the current pension-scheme with a clear, sustainable and transparent one. When he first presented his reform last year, this reform included merging the 42 industry specific schemes into one universal scheme, raising the retirement age from 62 to 64 and instituting a 5% pension cut for those who retire before 64. Since then, the government has abandoned the increase in retirement age as well as the cut to punish those who don’t abide by it. What remains is the government’s will to merge the many-layered, bureaucratic, unsustainable and unfair scheme into one. But trade unions on the street hope to relive their success from 1995, when three weeks of strikes paralyzed public transit, drew millions into the streets, and ultimately forced the government to abandon a plan that would have cut public-sector retirement benefits to the levels of private ones. Hopefully, this time history will play out differently. To sustain a generous pension scheme, the French will have to ensure that the system is sustainable, and whether one likes the “neoliberal Macronites” or not, the government is offering a rational solution.
The Current System is Expensive and Unequal
Compared to other nations, pension spending in France is exuberantly high. The government devotes 14.3% of GDP to pension payouts, more than any other developed country aside from Italy and Greece and twice as much as in the United States. Without reform this is likely to increase. A recent independent report by the Conseil d’orientation des retraites predicted that the system could be running an annual deficit of $19 billion by 2025 because demographic changes mean fewer workers are paying contributions and more retirees are drawing benefits.
This generous pension system is supported by a complicated, many layered bureaucracy. It consists of 42 different pension funds with widely differing rules depending on your profession, as well as a number of “special regimes” for particular categories of work regarded as especially hard. For some professions, these rules allow for privilege not seen anywhere else in Europe. Railway engine drivers, for example, can retire at 52 with a pension worth 75% of their last salary, although the official retirement age is 62.
The problem is that it is also opaque and often unfair. Under the current mandatory-pension system, the accounting schemes for determining benefits are all over the map, differing substantially by sector and occupation. The current system is the outcome of a long-going historical and political process aimed at extending social protections, and has led to highly segmented and unfair pension schemes. In theory, everyone retires at 62. In reality, the average retirement age is 62.5, but that number masks a host of disparities. The average age for men is just over 60. Some people, mostly women with complicated careers, have to work until they are 67. Shouldn’t the state judge people based on how much they’ve worked rather than what kind of work they do? After all, is running a train really that superior compared to a job with a much lower pension like chef or a janitor? The reform fixes this problem by judging giving out pensions based on how much and for how long someone has worked, in short, you get a bigger pension if you work harder, a fundamentally fair policy.
Macron & Co aren’t alone in their will to reform the current pension system, either. While many people are still clearly unconvinced by arguments for reform given by Macron and Prime Minister Philippe, a poll conducted by Odoxa-Dentsu Consulting for FranceInfo and Le Figaro found that sixty-three percent of respondents support scrapping the 42 industry-specific, state-funded pension plans and replacing them with a universal system and fifty-one percent support the proposal to progressively push back to 64 the minimum age to retire with a full pension from 62 now. The original plan was to make it so that people could still retire at 62, but with a lower pension, and would increase their pension if they work after 64. This push for a higher retirement age has now been abandoned in hopes of reaching an bringing the opposition closer to agreement.
Fairness and Equality
Demonstrators claim that reforms are intended to undermine the broader principle of intergenerational solidarity. But many of the important things will remain the same. For example, the total pension payments for a given year will still be financed by social-security contributions from active workers’ earnings in the same year and the legal minimum retirement age of 62, most recently set in 2010, will remain.
Still, Macron’s proposals for a “systemic” overhaul are different from previous reforms, the main goal of which was to balance the budget by slightly changing small, specific “parameters” across the 42 existing pension schemes. However, Macron’s program would create a universal system in which, as Macron stated, “a contribution of one euro will give the same rights to all.” The same rules would apply to all working individuals, regardless of their profession or employment status. And the contribution rate would stay the same for total earnings up to €120,000 per year, providing a €1,000 minimum monthly pension benefit for those who spent their careers at the minimum wage. It is true that the reform would require the gradual elimination of special pension plans, which currently allow some employees to retire ten years earlier than most other workers. The government has stood firm on phasing out privileged schemes in the name of equality; but it has agreed to a very gradual transition, such that 60% of current eligible employees would not be affected. That is something to be celebrated, not hurled bricks at. As a country of equality, fraternity, and freedom, a universal system would be more fair, providing an equal system for people of all backgrounds.
Besides fairness, the points-based scheme is also the most transparent option, because benefits follow directly from contributions, which is not always the case with basic annuity schemes. As such, the system enhances job mobility and reflects the realities of modern workplaces in France. By assigning additional points, the government can encourage a smoother integration of other redistributive arrangements such as child credits, unemployment benefits, or minimum monthly pensions.
Ongoing problems with reform
Of course, reforming how benefits are calculated will change the entitlements that some beneficiaries receive. There are still questions about which groups will be most affected, and how, and this has contributed to the general climate of distrust. Not surprisingly, those benefiting from privileged schemes are standing tall on the picket lines. But many civil servants will also be affected, because their benefits will be determined by average lifetime pay instead of their earnings upon retirement.
French Prime Minister Philippe made the reform harder to accept by insisting that the reform package include a new “equilibrium age” of 64 (to be reached in 2027), which would reduce benefits for people who retire early and increase benefits for those who postpone retirement. Philippe is correct in his concern about the financial sustainability of the whole system. However, by pushing for this measure, he appeared to break an earlier promise by Macron that the retirement age would remain 62. As a result, the French Democratic Confederation of Labor (CFDT), the main reformist union, turned on the government, forcing another round of negotiations. Philippe eventually withdrew his proposal, provided that a special conference addresses the financial issue within a period of three months. Poor strategizing from the government’s side thus gave the reform’s opponents a small victory.
Without budging on the principles of universality and equality, the government needs to undermine opposition to the broader reform package. On the issue of the transition period, it has stated that the new provisions will apply only to workers born in or after 1975. It has also agreed to exceptions for early retirements linked to arduous and hazardous working conditions, and it may offer some additional compensation for teachers and a few other groups. None of these changes will make the reform program simpler but they are necessary for Macron’s administration to carry out in order to unite France in pension reform.
The larger crisis over pension reform reflects long-standing divisions in French society. The current conflict has featured the usual confrontation between those responsible for reforming existing institutions and those fighting to preserve their own “rights”. It has also exposed a rift on the left, between unions that reject the reform proposals outright and unions that are open to negotiation.The more radical unions see the fight as part of a broader ideological struggle against Macron’s neoliberalist agenda, fearing that the Macron government is pursuing a funded system in the long-term.
In short, Macron is not facing a policy problem, but rather a public relations problem. The people of France understand that pension reform is needed to create a sustainable system able to support the future elderly or, in other words, the children of today. But they don’t trust Macron and his administration to carry out that reform. For this reason, Macron cannot solve this crisis by crushing the protests with police violence. Once again, he needs to abandon his “Jupiterian” approach, and exchange police baton for a more viable negotiation strategy.
Time for reform
The more moderate unions acknowledge that demographic changes – longer life expectancies, declining birth rates – require a higher retirement age. As shown with the Odoxa Poll, public opinion leans towards reform, too. Still, since so many French citizens have a stake in preserving the status quo, the strikers have also enjoyed strong, though diminishing, public support. Looking ahead, the government is waiting for commuters and others who rely on public transportation to lose patience with service disruptions. This could deal a blow to public support of demonstrations, and avoid the situation where it seemed like Macron & Co. forced a reform that most opposed. Strikes cannot continue forever.
At the end of the day, the government has a slim parliamentary majority with which to pass a reform package, possibly one that includes a few concessions but which will implement a universal pension-scheme. Tied to his campaign promise of pension reform, Macron needs this victory to stand strong in 2022 presidential elections. In need of a sustainable and fair solution to the current pension system, the French ought to support this push for universalism.