France says pension reform enough for several years

Mandatory pay-in period would be extended from 41.5 years to 43 by 2035
By Catherine Bremmer and Emmanuel Jarry
||Last Updated: 09/04/2013

PARIS (Reuters) — The minister in charge of France's pension reform says her proposals are robust enough to tide the system over for several years at least, even if economic growth falls short of expectations.

Health and Social Affairs Minister Marisol Touraine, whose pension law is set to go to parliament in October, told Reuters that while the plan may appear less bold than a 2010 move under conservative Nicolas Sarkozy to raise the retirement age from 60 to 62, the Socialist reform would be a lasting one.

The overhaul would gradually extend the mandatory pay-in period from 41.5 years to 43 by 2035 and requires workers, retirees and employers to fill in an annual deficit set otherwise to reach 20 billion euros ($26 billion) in 2020.

Analysts say the planned reform, the most closely watched of President Francois Hollande's 15 months in office, does not go far enough because it only slightly accelerates a lengthening in the pay-in period that is already in place.

The European Commission, which recommended tougher measures such as trimming inflation-linked annual pension rises, sounded a note of disappointment when the draft reform was unveiled last week and said it needed to evaluate it in detail.

But crucially, Touraine says, a steering committee would revise the pension system annually and make recommendations to the government if a shortfall in contributions caused by slow growth or a rise in unemployment needed addressing.

"This is not a stopgap reform. It puts in place measures that are destined to last," Touraine said in an interview.

"I'm not going to say it's the last reform. Who can say what will be necessary in 2035 or 2040? I am just saying that we are doing what's needed to get through the coming years."


Hollande has used modest, step-by-step reforms to try to bolster France's flagging competitiveness. While his pace of action has disappointed critics, government advisers say that going gently has so far ensured minimal opposition in parliament and on the street.

In contrast, Sarkozy's hike in the retirement age sparked weeks of large-scale street protests and fuel strikes.

"An acceptable reform is one that is not brutal," Touraine said. "We are not doing this to satisfy the demands of Brussels, we're doing it to reassure the French people, because not reforming would threaten the future of our pensions."

The European Commission has given France an extra two years to bring its public deficit below an EU ceiling of three per cent of economic output, but said in return it wanted to see meaningful change in a country where spending on pensions and welfare is among the highest in the bloc.

Touraine's draft reform has the pension deficit falling steadily over the next few years to show a small surplus in 2030 and stand at balance in 2040, based on a medium-term growth average of two per cent a year or slightly less.

Touraine said critics who see the reform needing revisiting if growth disappoints have overlooked the role of the steering committee, which she said would play a similar role to the state auditor's regular prodding of the government on public finances.

She also noted France's demographic advantage, with a high birth rate that will ease the pension squeeze in coming years.

"It's not an accounting reform that just realigns columns of figures. It's a structural reform that guarantees the system's long-term financing," she said.

The government is still figuring out where it will find the extra 1 billion-2 billion euros a year it needs to finance cuts to labour costs it has promised companies to compensate them for slightly higher pension contributions, Touraine said.

The government will also tweak the balance of spending cuts to taxes in its upcoming 2014 balance, she said, after it said last week that a plan for 14 billion of cuts to 6 billion in taxes would be altered to ease the tax burden.

"As growth is recovering earlier than we expected, we can limit taxes. But savings are always necessary," she said.

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