Macron confronts grim reality of France’s pension time bomb

In a country where employees have a legal right to ignore emails outside working hours, increasing the retirement age is a difficult feat.

But as France confronts a difficult economic climate and an ageing population, President Emmanuel Macron is making yet another fraught attempt to overhaul the pension system. 

On Tuesday, Prime Minister Elisabeth Borne announced that the government will gradually raise the retirement age from 62 to 64 in a highly controversial move. 

The reforms could become a defining issue for Macron’s second presidency, as unions and political opponents draw up battle lines. 

He had primed the nation for what was to come in his New Year’s Eve speech.

“As I promised to you, this year will be the year of reform to the pension system which aims to balance our system for the years and decades to come," Macron said.

"We need to work more." 

It’s not the first such promise. The last time the French President attempted to overhaul the system, it was met with a vicious backlash that led to the longest public transport halt in Paris in 30 years.

If he fails to reform the notoriously generous pensions system again, it will be costly both economically and politically.

The pension scheme is expected to have a €13.5bn (£12bn) shortfall by 2030 unless action is taken. Failure could also leave Macron as a lame duck in his second term. 

“France stands out in terms of its elevated level of spending and generosity on pensions," says Maxime Darmet, an economist for Allianz Trade.

The country spends more than most of its neighbours on pensions, he says, equivalent to about 15pc of GDP versus an EU average of 13pc. Men in France can expect to live for 24 years after retiring and women for 27 years - some of the highest numbers in the world.

Such high and prolonged levels of pension spending will become increasingly unsustainable as the population ages, experts warn.

"The pension system is projected to have a small deficit over the next, say, two to three decades. This small deficit of course builds up," says Hervé Boulhol of the Paris-based OECD, an intergovernmental organisation that represents rich countries.

Under the reforms, the minimum retirement age will rise gradually by three months per year from 1 September. It will reach 64 year by 2030.

By 2027, workers will have had to work for 43 years to get their pension payments in full.

Prime Minister Elisabeth Borne on Tuesday said the reform was “an essential political choice", but opinion polling by Odoxa shows that four in five citizens oppose the changes.

"I'm well aware that changing our pension system raises questions and fears among the French,” Borne said when announcing the measures. 

"We offer today a project to balance our pension system, a project that is fair."

The French have one of lowest effective retirement ages among OECD countries, with men typically retiring at the age of 60 and women at 61.

This means labour force participation rates among older workers are relatively low. Raising the retirement age would grow the workforce and benefit the economy in the long run, experts say.

Boulhol points out that while employment rates have improved among the 55- to 59-year olds, they are much lower among those aged 60 to 64.

It remains 15 to 20 percentage points below the OECD average, he says. 

"One objective of the reform is also to boost the employment rate after age 60 or 62 and this is of course important in the prospect of aging to increase the output potential of the economy," he says.

Macron has been fighting to overhaul France’s complicated pension system since taking up residency at the Elysee Palace in 2017. 

His first attempt to implement more wide-ranging reforms was scuppered by widespread unrest and the pandemic. 

Yet he has made it key to his second presidency after being reelected in April last year. 

Pensions reforms rarely pass quietly in France and this is unlikely to be an exception. The reforms could unleash widespread protests at a time when wider cost of living pressures from high inflation are already spreading discontent. 

"If Emmanuel Macron wants to make it the mother of reforms... for us it will be the mother of battles," warned the head of the hard-left FO union, Frederic Souillot, over the weekend. 

It is widely acknowledged that more money is needed to fund the expensive system but there is very little agreement on what should be done, according to Patrick Aubert, an economist at the Institut des Politiques Publiques. The Government will only consider raising the retirement age, he says. 

“Most unions and leftist parties advocate for an increase in contributions or some new taxes on richer people to increase funding for the pension system,” says Aubert. 

While experts say the new proposals are less radical than in 2020, pushing through the overhaul will be complicated - even if the outlook is better this time.

“It's a very political question for President Macron because it was one of the flagship policies during the election campaign.

"The government is really keen to push it through. But at the same time, the social and political situation in France is quite tense since the Yellow Vests in  2018 - 2019,” says Darmet.

“They are very wary that we have social tensions, which might arise. My baseline is that the reform will be pushed through and will be implemented. But we are likely to see really strong opposition. Possibly very heavy street protests." 

France was engulfed by widespread strikes by the Yellow Vests, a populist grassroots movement, before the pandemic, amid dissatisfaction with rising living costs, high oil and fuel prices and social inequality. 

The Yellow Vests have threatened protests in light of the retirement policy too, however, the movement is not as strong as it once was. 

Getting the reforms through parliament will prove difficult. After beating far-right candidate Marine Le Pen in the French presidential elections in April last year, Macron lost his parliamentary majority in the National Assembly during the legislative polls. 

This means he will have to rely on support from opposition parties or use an article in the constitution to force through the reforms, opening him up to a vote of no confidence. The outcome could come to define the rest of his presidency. 

He faces stark opposition from the unions and both the far left and the far right.

It may be the Republicans, a right-wing party closer to the centre, that will come to Macron’s rescue after he offered them some concessions in the past few weeks. 

But they are also not united on the explosive issue, meaning there are no guarantees.

Experts widely agree that reforms to France’s generous pensions system are necessary to make it sustainable for future generations. 

But - as in the UK - there is a debate around intergenerational fairness. Some believe it is unfair that pensioners who have already retired escape unscathed, while retirement gets delayed further for working people.

Darmet says people close to retirement will have to pay the price for the rising retirement age rather than current pensioners.

“People currently in retirement in France have a higher standard of living than people in the labour force," he says.

"They also have a higher savings capacity. And maybe the most important thing is the current backdrop where pensions are being indexed to inflation. At the same time, you see that real wages are declining, so you've clearly got a big divide between the two.”

The politically toxic debate about retirement ages is unlikely to disappear anytime soon even if Macron’s proposals go through, warns Boulhol. As people live longer, every few years politicians will face the same issue again. 

A solution to this would be to move towards a new system already adopted by eight OECD member countries, where the pension age moves with life expectancy. 

“There are three good things about this. One is that you don't need to discuss it every 10 years," he says.

"The second is that it is gradual so it's not erratic. Being gradual also then implies that it's fair across cohorts." 

For now, France likely faces months of protests and social unrest.