By Denis Latulippe, FCIA
Following in the footsteps of German Chancellor Bismarck, the French introduced ambitious pension legislation in 1910. As in Germany, retirement pensions were funded. In France, the age of retirement was set at 65 despite less than 10% of the population living to that age. Disability benefits were not provided for. In Germany, the retirement age was set at 70, but nearly 90% of Germans received disability benefits.
Turbulence between the wars spelled the end of these funded pensions. In France, this failure stemmed not only from inflation and monetary depreciation, but also from the decision by the highest court in the land to make pensions optional and the desire for a universal social insurance scheme.
At the conclusion of World War Two, the French faced a new set of realities: economic growth spurred by the Marshall Plan, which ushered in three decades of post-war boom (1945-1973), the political stability of the Fifth Republic (1958) and stronger solidarity thanks to social security (1945).
In 1945, France opted for pay-as-you-go pension schemes in order to quickly improve seniors’ financial situation. Current contributions would fund the same year’s benefits. It was seen as a sign of intergenerational solidarity.
The ensuing years were marked by improved socioeconomic conditions and an increase in life expectancy.
The oil crises in the 1970s signalled the beginning of a slowdown in economic growth culminating in a “crisis of the welfare state” and problems funding the social safety net. At the same time, the age of retirement was lowered from 65 to 60 under the presidency of François Mitterrand.
The ensuing period saw reforms introduced over the years. They were poorly received, especially since they tightened the various provisions and cited the relevance to fund the system along the lines of Anglo-Saxon pension funds. Pensions became the standard bearer of French solidarity. Apart from their role in preserving a leading post-war institution, there are various reasons that can explain this:
- Patchwork reforms: The successive reforms were stop-gap measures that constantly brought the question of retirement age to the fore. Other countries, including Canada and Sweden, were able to adopt lasting fixes. In Canada (Quebec Pension Plan and Canada Pension Plan), funding was stabilized over a window of 50 to 75 years. In Sweden, it was decided to adjust the retirement age automatically in line with longevity.
- Retirement legitimacy: Unlike in some areas (in Asia, for example) where the work ethic frowns upon end-of-life inactivity, the French view retiring comfortably at the end of one’s career as legitimate and necessary, much the same as they view annual vacations.
- Union action: France has a low rate of unionization. Public action helps enhance labour federations’ visibility and credibility, while also protecting certain unionized employees’ special pension plans.
- Mobilization: As they say, apart from soccer, demonstrations are the favourite sport of the French.
- Pension funds: The pre-funding of pension plans in Anglo-Saxon countries led to the amassing of considerable capital, which was invested far and wide, including in France. The French saw this as an abusive influence and a threat to their economic sovereignty. As a result, they rejected the funding model for their pension system.
The solution is not simple, particularly because France is one of the countries with the highest mandatory contributions. The need for fiscal balance strikes at the heart of these debates.
There are two potentially constructive avenues in seeking a way out.
- Greater flexibility: The “lone” legal retirement age remains central in France. It now stands at 62, with movement to raise it to 64. A conversation around greater flexibility, including the possibility of progressive retirement, could help free the French from the current stalemate.
- Taking a consensus approach: In his final term as President and mindful of his legacy, Emmanuel Macron seems disconnected from the reality of the French. He seems to want this reform “at any cost.” To achieve this, he will need to show that he is listening and to surround himself with people who can build bridges.
Denis Latulippe, FCIA, was a senior official with the Quebec government and the United Nations. Currently a full professor at Université Laval’s School of Actuarial Science, he sits on the board of directors of Desjardins.
This article reflects the opinion of the author and does not represent an official statement of the CIA.
The following comments were shared by readers:
Alain Beland: Thanks Denis, very good article. And this is coming from a beneficiary of the French pension system. 🙂
