French pension system in trouble

February 25, 2003

Free Market Foundation

Successive Prime Ministers have noted that France is a demographic time-bomb ticking away. With an aging population and low birth-rates, workers there are going to have to make hard choices regarding pension reform while considering policies that help families.

By 2040, there will be only one worker for every pensioner (today there are two per pensioner).

Even if the women in France were to bear an average of 2.1 children apiece instead of today’s 1.9, they would only breed enough extra taxpaying workers to finance at most 10 percent of the country’s pensions in 2040.

Public sector workers, a quarter of the workforce, can retire on a full pension after 37 1/2 years of paying contributions; private sector ones must complete 40 years.

To maintain the status quo until 2040 would require extending normal working life by six years, raising contributions by a half or reducing benefits by a third.

France is also toying with two other approaches: (1) Allowing those who are willing to retire later and (2) persuading companies to employ older workers only 16 percent of French citizens aged 60-65 are still working, compared to 46 percent in Ireland and 38 percent in Britain.

But the most important tactic is to encourage workers to save for their own old age. Looking at Sweden, workers there have “capitalised” personal savings accounts which add investments to contributions and do away with the notion of compulsory retirement.

Source: Work now, enjoy later, Economist, February 8, 2003.

For more information http://www.economist.com/
For more on Social Security (Problems and Reform in Other Countries) http://www.mysocialsecurity.org

FMF Policy Bulletin\18 February 2003