French should pay into pensions for longer, panel says

Reuters News
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Posted: Jun 14, 2013 9:18 AM
French should pay into pensions for longer, panel says

By Ingrid Melander

PARIS (Reuters) - The French should pay contributions for longer to get a full pension and well-off pensioners should pay more taxes, a much-awaited advisory report to President Francois Hollande's government said on Friday.

Pension reform, a controversial issue for decades in France, will be closely watched by its euro zone partners, which expect changes in the generous but costly system in return for giving Paris more time to bring its public finances back in line.

The study does not propose a radical overhaul of the pay-as-you go scheme but calls for measures that ask more of workers and pensioners. It also recommends a fractional increase of employers' pension contributions.

The government has said it will study proposals from the report but is not bound by them for its planned revamp of the pension system later this year.

The objective of the reform is to balance the accounts of the pension system by 2020, which would otherwise face a funding deficit of about 20 billion euros ($26.6 billion) by then.

Past governments have sought to overhaul France's costly system of old-age provision but have run up against fierce street protests.

In a sign of how sensitive pension reforms are in France, President Francois Hollande angrily told the European Commission it could not "dictate" French policy after the EU executive urged it last month to reform its pension system by the end of 2013 and made recommendations on how best to do that.

After receiving the consultative report on Friday, Prime Minister Jean-Marc Ayrault said pension reform was "absolutely within reach" and that the efforts asked of the French people would not be "overwhelming."

The panel recommends increasing the contributions period needed for a full pension from 41.5 years now to up to 44 years, which could mean that many could end up having to work longer although the statutory retirement age would not change.

"The committee considers that increasing the duration of contribution is the most relevant way of adapting the pension system ... to longer life expectancy," the report said.

The statutory retirement age, which was raised to 62 from 60 in 2010, should be looked into in the medium to long term, the panel.

The report proposes only a fractional increase in employers contributions after the European Commission and IMF both recommended that employers should not see their costs rise.

It suggests increasing part of the pension contributions by 0.1 percentage points per year between 2014 and 2017, and to share that equally between employers and employees.

Well-off pensioners would get smaller tax rebates, pay more social security contributions and their pension would temporarily not be fully indexed to inflation.

PROTESTS

France has tried for more than 20 years to reform its pension system but successive governments have only pushed through minor reforms in the face of staunch opposition.

Some of the toughest strikes and protests France has ever known were triggered by pension reforms, with the country paralyzed for weeks in 1995 when the then conservative Prime Minister Alain Juppe tried to push through reforms.

Major labor unions have said they would oppose an increase in contribution periods as well as a change in how public sector pensions are calculated. They have warned of protests if they were unhappy with the upcoming reform, which they will discuss with employer groups on June 20-21.

More than one in seven French say change is necessary but 80 percent consider the upcoming proposals will not guarantee the sustainability of the pension system, a Tilder-LCI-Le Figaro poll showed.

A reform that falls short of seriously addressing the failings the pension system risks rattling investors in French debt, which has seen record low interest rates this year.

"For the investors that we have contact with, the retirement reform is very important and is followed closely," the head of the Agence France Tresor public debt management agency, Ambrose Fayolle, told Les Echos newspaper.

"They've taken note that the French authorities' intention to push this file through before the end of the year," he said.

For the full text of the report, in French: http://link.reuters.com/jaj88t

($1 = 0.7519 euros)

(Additional reporting by Julien Ponthus and Leigh Thomas; editing by Mark John)