Thursday, January 27, 2022

France’s generous pension system needs reform, but can Macron risk doing it?

Changing the pension system is divisive and could risk losing Macron the presidential election next year.

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France has one of the lowest retirement ages in the world, and that’s proving to be a big headache for Macron, reports CNBC.

France’s generous pension system is back in the spotlight as President Emmanuel Macron prepares for new elections in April.

He had plans to change France’s pension system, where workers can retire at 62, before the coronavirus pandemic hit and he was forced to put his plans on hold to deal with the health and subsequent economic crises.

With less than a year to go before French voters head to the polls, Macron is considering reviving his plans and making good on his previous promises.

In its pre-Covid format, the pension reform included raising the retirement age from 62 to 64 and creating a points-based system, which would mean some workers can retire earlier than others.

The reforms would be politically divisive.

He met with trade union leaders on Tuesday to discuss the “demographic challenge” in France. The unions are reportedly against changing the pensions system any time soon.

Current opinion polls project Macron will win re-election in 2022, after facing off with the far-right Marine Le Pen.

However, recent regional elections, where abstentions were at record highs, showed strong support for the centre-right party Les Republicains.

Jessica Hinds, an economist at Capital Economics, told CNBC that changing the pension system could be “quite a gamble” for Macron.

“It would allow Macron to claim he had followed through on his 2017 promise and also could allow him to steal a march on rivals from the centre-right,” she said.

But, she added, the reform was politically unpopular even before the pandemic and is much more so now with a recent survey showing that 60% of voters opposed pension reforms before next year’s election.

Tomasz Michalski, an economics professor at HEC Paris business school, told CNBC via email reform pits different groups against each other.

Blue-collar, low-paid service workers and public sector workers are on one side, versus private sector, white-collar workers and retirees on the other, he said.

The issue has already sparked strikes across the country, including in early 2020.

Ross McInnes, chairman of the defence and aerospace firm Safran, told CNBC, “I think we have to push back the retirement age.

“We borrowed with our German, Dutch, and Finnish neighbours through the European Loan Program. We can’t have a situation where they’re retiring at 67, and we’re leaving work at 62,” he said.

“The baby boomers have been leaving debt which will have to be paid by younger generations. That is unfair, and the only way to stop it is to push the retirement age up to 64 or 65, to help us balance the books.”

Analysts say one way or another, and sooner rather than later, changing France’s costly pension system will be inevitable.

“Even if Macron holds off this time, the issue will not go away,” Hinds said.

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