French Pension Reforms Signal a Looming Crisis
Image courtesy of L'odyssée Belle on Unsplash
France’s pension system has a long-standing reputation for its generosity and effectiveness. Based on a pay-as-you-go model, the current system requires workers to buy into their pensions by contributing to the fund whilst still working before the retirement age, funding those currently relying on it. While the pension’s present structure may have proven effective until now, France’s rapidly declining birth rates and aging population pose a challenge to its stability, as current trends would either necessitate an increase in the pension tax for future workers or decrease the quality of life for upcoming pensioners. Recognizing this threat, French President Emmanuel Macron “made social reforms a flagship policy of his 2022 re-election.”
At the time of Macron’s re-election campaign, the proposal of raising the retirement age from 62 to 64 was tepidly received. Former President Nicolas Sarkozy had already raised it from 60 to 62 in 2010 at the detriment of the many workers that swiftly took to the streets to protest the controversial policy. Protesters argued that “retirement at 60 was a cornerstone of France's social security system.” Given the widespread discontent with Sarkozy’s changes, it was unlikely that Macron’s revival of Sarkozy’s reform caused his successful reelection in 2022. Despite Macron having recognized the likely backlash he would have received after once again tampering with the pension system, he and many of his advisors have clearly deemed it unfit for purpose, stating that the current structure would increase the pension deficit up to $13 billion annually by 2027. Justifying the issue’s urgency enabled Macron to force the resolution through the government, avoiding the need for approval by the country’s lower parliamentary house.
Because the French pension system is nationally popular, reforms and changes are considered highly taboo. Evidence by the fact that millions of French citizens gathered to protest the forced extension to their working career. In a widely discussed act of protest, French rubbish collectors even allowed over 7,000 tonnes of rubbish to pile up in Paris while on strike. While the protests were effective enough to ensue Macron’s government to a vote of no confidence, the backlash failed to produce any tangible results, with the President just narrowly surviving the vote by nine votes and the reforms still set to go through.
Beyond the immediate cause of the pension reforms, elements in French culture such as the constitutionally-protected “right to strike” have definitely been a sizable factor behind the frequency of protests in the country, with France championing one of the highest rates in the world in terms of days per year with protests.
Still, as demographic trends show that struggles related to aging populations are not exclusive to France, civil unrest surrounding the retirement age might spread around Europe. Within the next century, the median age in Europe is expected to increase by over five years, while the number of people aged 80 years and over is projected to rise to nearly 61 million. Additionally, the projected population of Europe is expected to fall by almost 200 million people within the same timeframe. For France, the pay-as-you-go model will not be able to sustain an ever-growing aging population with higher longevity as the amount of working-age people slowly decreases. The combination of all the aforementioned factors will definitely pile pressure onto other European pension systems as well.
If countries like Italy, Norway, and Iceland, which have already raised the retirement age to 67, continue to do so in response to current demographic trends, there would never be a viable stopping point. Because Macron is following suit, it is clear that this policy does nothing but extend the inevitable: if Europe wants to support a growing army of pensioners and expand the workforce by prolonging retirement eligibility, then a major overhaul is definitely needed.
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