Too big to change? What is happening to France’s pension system?

After promising large-scale economic and social security reforms since coming to power in 2017, French President Emmanuel Macron has faced heavy resistance from labour unions to his proposed changes. The French social security system has been a common cause for headache since its inception after World War II. President Macron is but the most recent champion for reform in a long line of French leaders, and as such, he has had to build a unique political narrative in support of his reform strategies. What differs from past (successful) French reform attempts, however, are the lengths that Macron is willing to go to see his reforms succeed.

Due to a combination of domestic politics and the landscape of professional companies at the time it was introduced, the French social security system, sécurité sociale, better reflects a Bismarckian insurance-based system than the three U-rule of the 1942 Beveridge Report. As a result, there are 42 pension schemes in France, with roughly 80% of the population falling into the “regime generale”. The French pension system has only been reformed twice (1971 and 1982) to increase the generosity of its benefits. Since then, however, efforts to reform the system have focused on retrenchment.

The French pay-as-you-go system relies on cross-generational solidarity and redistribution, meaning those who are currently working pay the pensions of those who are retired. By this logic, as the population ages and as life expectancy increases, fewer people pay into the pension system while more people take from it. The vulnerability of such a system to changes in the ratio of payers and takers first became evident in the 1990s, when the French government began facing mounting public deficits. This led to a reform in 1993 that impacted the benefits formula for the regime generale.

Noting the differences in contribution years between pension schemes, in 1995, Prime Minister Juppé aimed to push through another reform that would increase the number of contributory years for full retirement in special systems from 37.5 to 40 years. This was met with massive waves of protests in late 1995, peaking at two million people. President Chirac learned from his PM’s failed top-down approach by working to build consensus through union negotiations, which led to the successful extension of the 1993 regime generale provisions to the public sector special system in 2003. 

But while successful in their own respects, neither the 1993 nor the 2003 reform challenged the Bismarckian system underpinning French pensions, allowing for discrepancy in the rules of the game for workers of different industries. For example, while the minimum retirement age of those under the regime generale is 62, ballerinas can retire as early as 42. This has led the Macron government to push for a new universal system that would replace the 42 different pension schemes that exist today, bringing a narrative of social justice through universality.

But while most of the French population agrees it is unsustainable to carry on with the current system in light of an aging population, there have been massive protests in opposition to the proposed changes. Critics say that the new points-based-system is more individualistic, and that new incentives will make the true retirement age 64 rather than 62. To make matters worse, the striking of refinery workers in France has caused national refuelling problems, leading further strikes from yellow vest protesters and others worried about the cost of living.

President Macron has threatened that if his reforms do not pass through parliament, he will instantly dissolve the National Assembly and call new parliamentary elections. This suggests a willingness for Macron to hedge his bets on a sufficient level of electoral insulation. Additionally, France is not in great financial standing. The French government recently announced plans to borrow a record-setting €270 billion in 2023, after an estimated 111.5% debt-to-GDP ratio at the end of 2022. It therefore seems that President Macron is weighing electoral insulation and a budgetary crisis against a highly visible and impactful reform attempt. 

Originally, Macron committed to a Chirac-type strategy of union negotiations to find an area of compromise. Though, these negotiations have strung out with little result, leading to a change in strategy. The Macron government is now looking to pursue an unpopular, Juppé-type, top-down strategy via an amendment to the 2023 budget.

Only time will tell the outcome of France’s latest attempt to reform its “sticky” 77-year-old pension system. Like his predecessors before him, President Macron finds himself in a new politics of welfare resulting from a unique set of domestic and global influences. The French will finally know at the end of this year whether their pension system is too big to change.