Reform Accompli

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It was only to be expected that the recent pension reform in France could not have gone down without a good fight. The French, after all, are known for their love of a good scrap, and they take it to be their birthright.

But despite all the fire and the ire it drew, pension reform in France was a fait accompli. The protests may continue and there are still strong shouts from different quarters about repealing the new law (the main component of which raises the retirement age in France to 62 from 60), but while experts acknowledge that the issue is highly sensitive and that any further steps—although they are certainly necessary for the country—will be extremely difficult to take, they also say that for France, there can be no turning back now from pension reform.

“It is clear that the new measures will have some impact in terms of sustaining the public pension system but it will not be sufficient,” says Anna Cristina D’Addio, an economist in the social policy division of the Organization for Economic Cooperation and Development (OECD) in Paris. “France is still facing a deficit, and while this measure will help to stay the deficit, it won’t take care of it completely.”

In addition to the problems that dog many European nations—increases in life expectancy, aging populations and fewer people in the work force—France has one of the lowest retirement ages among OECD countries. That, “together with the fact that people are living longer, means the length of time spent in retirement is the highest in France compared to other European countries,” D’Addio says.

Clearly, the pension system as it is needs to change, but while further efforts to effect that change will inevitably lead to more dissent, D’Addio believes that they are not only necessary, but that they need to be overarching in nature.

An important part of proper pension reform, for instance, is getting people to stay in the work force longer, and a number of countries—Chile, to cite one—have taken steps to ensure this (see November 2010 article on Chile in Investment Advisor). Their efforts have been successful, and while the new French law includes some measures that encourage companies to employ older people, D’Addio believes that these should be extended further to make reforms more effective to the system as a whole.

“In addition to increasing the retirement age, France has also reduced the incentive to leave the labor market early, but the government must also take steps to address more effectively the other side of the story, which is the employer side, and make sure that there are measures that encourage companies to hire older workers,” she says.

The French pension system is also extremely fragmented and not particularly transparent. Most people are collecting pensions from numerous different sources, D’Addio says, which would imply that unifying the system and increasing its transparency would make more sense in the first instance and would set the stage then for a more thorough overhaul.

But knowing France, all of that is much easier said than done, and whether it’s current President Nicholas Sarkozy or anyone else who undertakes the effort, one thing is certain: It won’t be a cakewalk.

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