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French workers, firms to pay more in pension reform

Published on Tuesday, 27 Aug 2013

PARIS: French workers and companies will pay more into public pensions over a longer period of time under long-awaited proposals to reform the indebted scheme announced by the government on August 27 after talks with employers and unions.

The changes, the most closely watched of Socialist President Francois Hollande’s 15 months in office, aim to help plug a deficit in the retirement system expected to reach more than €20 billion (US$27 billion) by 2020 if nothing is done.

They avoided more radical measures urged by the European Union and some investors, and stuck to the president’s promise not to touch the legal retirement age of 62. The last increase in the age triggered nationwide protests.

Prime Minister Jean-Marc Ayrault said the reforms would share the burden of supporting an ageing population.

“The reform that I’m proposing aims to fix the accounts in a lasting way while also removing sources of injustice,” he said.

The proposals are due to be presented to the cabinet next month and debated in parliament in October.

Under the plans, workers and companies would increase contributions in equal proportions from 2014 and gradually lengthen the period for paying in.

The reform stopped short of trimming annual increases that adjust pensions for inflation and bringing in other money-saving measures proposed by a panel of experts earlier this year.

“I’m not very reassured, because I find myself asking whether it’s indeed a reform. It’s a just a trick,” said Gilles Carrez, the conservative leader of the lower-house of parliament’s finance committee, on RTL radio.

The reform would very gradually lengthen the pay-in period to make 43 years of contributions mandatory for all by 2035. For now, workers must pay into the system for 41.5 years by 2020 to merit a full pension.

The proposal would raise pension contributions by 0.15 per cent in 2014 and then by a further 0.05 per cent in 2015, 2016 and 2017 to help fill the spiralling hole in the pension pot.

The increase is intended to add €4.4 billion annually to the pension system’s funding from 2020 while other measures will bring the total additional funds to €7.3 billion.

The government, under fire from the business sector over high labour costs, aims to soothe the pain for companies by passing a parallel measure to lower the social charges that employers pay on salaries.

However, the head of the MEDEF employers association, Pierre Gattaz, blasted the plan as a “non-reform”, warning that raising pension contributions would discourage companies from hiring and raise unemployment.

“All the government does is tax and then tax some more,” he said in an interview with Le Figaro. “This is a dangerous reform that is not acceptable to us.”

In addition to raising contributions, the reform proposal will move the month for adjusting pensions for inflation from April to October, saving some €600 million a year from 2014 and rising to €1.4 billion by 2020.

Well-off pensioners with three or more children would be taxed on a 10 per cent bonus they receive on their pensions, raising an extra €1.2 billion as of 2014 and reaching €1.3 billion by the end of the decade.

Under the reform, the government will start a points-based system for strenuous jobs that will let them take their retirement early.


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