Pension reform – Summary

A summary of the government’s planned reform of the retirement system, as well as the reaction and strikes since December 5, 2019. Some additional clarification on the standard of living of retirees in France compared to foreign countries.

Edouard Philippe’s announcements on Wednesday 11 December 2019

> What year were you born?

The reform will not affect those born before 1975.

The reform will affect in a progressive way those born between 1975 and 2003: it is the years worked from 2025 onwards that will be calculated for the universal scheme, the previous years being calculated according to the old model.

For those born in 2004, the universal system will start in 2022.

> The retirement age… 62 or 64?

You can always retire at the age of 62.

However, the equilibrium age is set at 64: this means that if you retire before this age, you will have a penalty. If you retire later than 64, you will have a bonus. This is called the “pivot” age in the media.

(This is the reason for the anger of the CFDT, a union that favors the point-based system… but is against the pivotal age of 64. The result of crossing this red line was the call for demonstrations on December 17)

> Whatever happens, you will have at least €1,000 in retirement

This minimum of €1,000/month will be ensured from 2022. The goal is to reach 85% of the net smic. Today, an average of 980€ is paid.

> Large families favored

If we think about it coldly, to keep the system running, the new generations must remain numerous. This is perhaps what encouraged the government to make a gesture to favor large families.

In concrete terms, an additional 5% in points will be granted for a child born after the implementation of the universal system. And even an additional 2% from the third child.

It is interesting to see that this calculation favors mothers, since they will be the default beneficiaries of these supplements, unless the parents decide to share the amount, or to grant them to the father.

> How much is a point worth?

Still no exact answer to this question.

But what the government has assured us is that its value will never decrease. On the contrary, the points can be revalued according to average salaries and their value will be decided by the social partners.

This does not open the door to unreasonable increases, since the rule will be that the universal system must be balanced every 5 years.

> Special cases in this “universal” system

As a police officer, prison administration staff, air traffic control engineer, the early retirement age is 52.

As a professional fireman, customs supervisor, and municipal policeman, the early retirement age is 57.

Civil servants, including teachers, will have their bonuses taken into account in the calculation of their retirement. It is also by increasing their remuneration that the government wishes to ensure that teachers and researchers do not suffer a reduction in their retirement.

Finally, the “compte pénibilité” will give rise to additional retirement points for the professions concerned.

The reaction to the pension reform: summary of the demonstrations

Massive demonstrations are planned from December 5, 2019.

The December 5 strike would have gathered 806,000 demonstrators, according to the Interior. 71 people were placed in police custody and 11,490 preventive controls were carried out in Paris. 700 “ultras” would have participated in the demonstration in Paris.

The strike has nevertheless made alternative transport happy: self-service scooters, bicycles and trotinnettes have increased significantly.

On the second day of the strike, there were 300 km of traffic jams before rush hour, which is twice as much as on the first day of the strike. 500 km of traffic jams were accumulated on Friday evening. However, almost all schools were open on Friday in Paris.

Until December 12, the strikes remain at the same level, even if they show a slight decrease. In this sense, only 10% of TGV were running a week earlier, against 25% on December 12. Traffic remains heavily disrupted everywhere (bus, metro, RER, TGV, Transilien, Ouigo, and TER).

But why all these demonstrations? The main issue is the pension reform.

In the world, we can identify two main pension systems:

The two main pension systems

The funded pension: each worker accumulates capital (money, assets) for the days when he will not work anymore, when he will be retired.

Pay-as-you-go: each worker contributes to a pension system. What is collected by the workers is paid back to the older people who are already retired. Later, when the workers retire, it will be the new generations that will contribute to the pension system for them.

While the funded pension was the classic way, the pay-as-you-go pension replaced it, especially after the 1st World War and during the 2nd World War.

What is at stake today are the rules of the pay-as-you-go system. The question is no longer whether it is preferable to have a funded or a pay-as-you-go pension, (each person being able to save for his or her own pension), but how the pay-as-you-go system should be organized.

At what age do the French retire?

On average in 2018, and excluding early retirements, the retirement age was 63.4 years.

The standard of living of people over 65

France is extremely well placed compared to the OECD average (a group of wealthy countries), with the disposable income of the +65 year olds being higher as a percentage (103.4%) than the overall population in 2017. (The average being 88% for OECD countries)

This means that the +65 year olds have a higher standard of living compared to the population as a whole.

The announced changes to the retirement system in France in 2019 BEFORE Edouard Philippe’s announcements on December 11, 2019

Today’s pay-as-you-go pension system in France is broken down into 42 schemes.

The main effort of the pension reform tends to merge them into a single regime, a single universal system.

A single account will be set up that records each day worked by a French person. Each euro contributed will be rewarded with the same right for each French person, at least as the government wishes.

Although the system will be the same for all, the calculation will be different for civil servants, military personnel and employees of special schemes whose bonuses will be taken into account.

The big idea is to calculate the whole pension system by points. For example, according to the number of children, points will be granted, or for work interruptions.

Another important aspect is that a minimum pension is foreseen (for those who have worked part-time all their life, or for lower incomes).

Many specificities will be taken into account, such as long careers, disabilities, risky jobs.

Finally, the pension system will not apply immediately. French people who are less than 5 years away from retirement age will not be affected.