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How are pensioners doing in France? | Business and economics news

 How are pensioners doing in France?  |  Business and economics news

After months of protests, violent confrontations with police and a government accused of violating the constitution, French President Emmanuel Macron has made the most sweeping changes to the country’s pension system in a generation.

Until recent reforms, French workers were legally allowed to retire at age 62, and while that doesn’t guarantee a full pension unless they’ve worked and contributed long enough, Macron managed to raise that age to 64.

Historically, pensions have been a major political focal point in France, and this current confrontation between the government and workers is as volatile as ever.

“Every country has its sacred cows,” Nicholas Barr, a professor at the London School of Economics European Institute, told Al Jazeera. “In France, changing the retirement age is a sacred cow.

“To give you other examples of sacred cows, in the US it’s just the mention of any public involvement in health care that you immediately get cries of ‘communism’ and ‘socialism’; in Britain you bring the slightest hint of private delivery into the National Health Service and get prompt cries about betraying all the principles of the NHS.

“And in France the equivalent, the third track, is the retirement age. And while you can acknowledge that it is third rail, the idea that the retirement age can be kept at 62 is simply untenable in my view.”

France has one of the lowest ages of eligibility for a state pension among European countries and spends a significant amount of money supporting the system.

It is based on the premise of “pay it forward”, whereby younger workers, particularly in public sectors such as education, transportation or energy, pay above average taxes and earn lower wages, but know that they will be compensated by leaving work while they are still relatively young and healthy, and live in similar comforts, as a new generation will provide the state treasury for this.

There are exceptions to this system, such as farmers and farm workers who are classified as self-employed and generally in the private sector on private farms. This means they may only be eligible for part of a state pension, despite their importance to French society.

The pension program now faces financial challenges due to demographic changes — an aging population and a significant fall in the birth rate — which are straining the system’s finances.

France versus its neighbours

So, are French retirees doing better than those in other developed economies? It depends on who you ask and what size you use.

While one may envy the relatively early retirement age, the average monthly state pension in France at around 1,200 euros ($1,327) in terms of gross monthly payments is significantly lower than that of many of its neighbours, such as Spain’s 2,500 euros ($2,764). ), Belgium’s 3,000 euros ($3,317) and Luxembourg’s 3,300 euros ($3,649). Two of them are also relatively cheaper to live in, so compared to its literal neighbours, France’s pension system doesn’t seem so rosy.

However, with a lower cost of living than Nordic countries such as Denmark, Norway and Iceland, and higher pension benefits than most of Eastern Europe, Ireland and the UK, France is outperforming other parts of Europe. In fact, it ranks seventh in the Breakeven Pension Index, a weighted table compiled by Almond Financial, a financial planning firm. In fact, French pensioners receive a fairly healthy monthly payment and can live more cheaply than most other Europeans.

There is also a cultural dimension. Workers in France often view retirement as a genuine ‘third chapter’ in their lives rather than an afterthought, so they feel it is worth leaving the workforce at a relatively young age.

The system in numbers

French public sector workers typically receive higher pension benefits than private sector workers and will retire at an average age of 62.9 until 2021, according to data from the European Commission.

The statutory retirement age varies across Europe. In Germany, Italy and Denmark it is 67, compared to 66 in Spain (rising to 67 in 2027). In the UK, the current retirement age for a state pension is also 66, with Prime Minister Rishi Sunak hinting he could push for an increase to 68.

On average, residents of the European Union retire at 63.8, with Luxembourg having the lowest average retirement age at 60.2.

Then there is the amount that governments set aside for pensions.

According to the OECD, France spends an average of 14.8 percent on pensions as a percentage of gross domestic product (GDP). In the EU, only Greece (15.7 percent) and Italy (15.4 percent) pay more. The European average is 11.6 percent, with Poland spending 10.6 percent of GDP on pensions, ahead of Germany at 10.3 percent and Romania at 8.1 percent, and Ireland coming last at 4.6 percent. The figure for the UK is 5.5 percent, according to the London Office of Budget Responsibility.

“There is a strong cultural attachment to state pension provision and also quality of life, which the French value highly in terms of years worked, but also working hours per week, vacation days per year, and so on,” Rainbow Murray, professor at Queen Mary University London’s School of International Relations, Al Jazeera told. “Retirement, at an age and financial level where it can be enjoyed, is seen as a right.”

Freedom, Equality… Reality

However, there are caveats to the perception of the French pension system, says Paul Smith, associate professor of French history and politics at Nottingham University.

“The generosity of the French system is a kind of myth. For example, try to be a farmer or work in a profession that falls under the regime for farmers,” he said, adding that it is true that someone who qualifies for a full pension in France receives about twice as much support as, say, a British pensioner receiving the full pension.

“But that’s because the French state takes on a greater burden in terms of contributions and disbursements.”

However, the number of people eligible for the full pension is much lower than you might think. A basic pension of 1,200 euros ($1,327) per month is a kind of chimera.

“The problem is that many French people actually live on wages not much higher than the minimum wage. For example, teachers earn about 1.5 times the minimum wage, so contributing to a supplementary pension scheme is out of the question.”

Why such a violent reaction?

Despite Macron and his ministers claiming they will give themselves “100 days of reconciliation, unity, ambition and action” to heal the country, observers can’t help but feel a red line has been crossed.

“Macron has torn up relations with the unions and they don’t seem willing to come to the table anytime soon,” Smith said.

Barr added: “Pensions are a tool for young people to plan their life course and should be shaped gradually with a long-term vision. So sudden, sharp changes, especially for people approaching retirement, is crazy design.”

But was this set of reforms a fundamental and necessary step to avoid system collapse?

“Very much,” said Barr. “Italy is a very sad illustration of ignoring the problem. Different governments kicked to the ground for more than 30 years, until the bad things hit the fan, and then in 2011 the Mario Monti government had to reform very radically and very quickly,” he said.

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