Already postponed many times, the pension reform promised by Emmanuel Macron is expected to be presented to parliamentarians during the following year, in 2020, and should come into effect in 2025.
Overview of a delicate situation:
A pension system based on a “universal” system, thus simplifying the current system which involves no fewer than forty-two different schemes. A pension system where “every euro contributed grants the same rights, regardless of when it was paid, regardless of the status of the contributor.” This is the pension system that Emmanuel Macron has committed to implementing within the next five years.
While this may seem simple on paper, the reality is quite different. Indeed, the announcement of this project has already prompted numerous demonstrations and social movements across the country. In response to these demands, the president insisted that solutions would be found to avoid penalizing certain professions, including nurses, nursing assistants, and teachers.
Coming out of the G7, while Jean-Paul Delevoye recommended establishing a pivot age of 64 with a penalty for early departure, the president expressed his preference for an agreement on the contribution period with social partners rather than on age.
Numerous strike movements took place in the capital during September. Among them, the RATP which paralyzed Parisian transport on September 13, as well as demonstrations by professional categories including lawyers, doctors, pilots, and flight attendants. Prime Minister Edouard Philippe sought to reassure and calm the discontent of self-employed workers and employees under autonomous schemes by ensuring that the convergence could be extended beyond fifteen years and that the switch to the universal system could therefore be delayed.
Coming up:
On November 22, the Pension Advisory Council will have to rule on the financial situation of the pension system for the coming decade and propose measures to ensure its balance when it effectively comes into force in 2025.
Summary of the High Commissioner’s recommendations:
On July 18, Jean-Paul Delevoye, High Commissioner for Pension Reform, presented his recommendations for the future universal system. This report concluded eighteen months of preparation and should serve as the basis for the draft legislation.
A points-based system
The goal of the universal system is to merge the forty-two currently existing schemes into a single one. All employees will therefore be subject to the same rules, regardless of their status or professional category. Private-sector employees, civil servants, self-employed workers, liberal professionals, and farmers will all be treated equally. Special schemes such as those for the RATP or SNCF will be eliminated.
In this universal system, each day worked will earn a certain number of points. The rule of the twenty-five best years in the private sector or the last six months in the public sector is therefore abandoned. Here, the entire career of the active worker will be taken into account.
Points system
The initial proposal was established on the basis of a certain number of points acquired according to the amount of contributions. The accumulated points are then indexed to salary growth rather than inflation.
Once the points are converted into pension benefits, pensions will be adjusted according to inflation, as is currently the case, in order to maintain retirees’ purchasing power.
In practice:
- Every 10 euros contributed will earn 1 point.
- 1 point will be worth 0.55 euros upon redemption.
Thus, 100 euros contributed will accumulate 10 points, granting the right to 5.50 euros of annual pension.
“Solidarity” points are also planned for periods of involuntary inactivity such as unemployment, maternity, illness, or disability. In his report, Jean-Paul Delevoye recommended that caregivers should also benefit from these points.
Retirement age
In accordance with Emmanuel Macron’s presidential campaign promise, employees will be free to retire from the age of 62. However, a reference to the “full rate” with a pivot age will be maintained in order to encourage workers to retire later.
In 2025, this pivot age will be set at 64. A penalty or bonus of approximately 5% per year will also be applied. It will reduce or increase the pension for each additional or fewer year worked.
Finally, this pivot age will vary according to the life expectancy of the generation to which the insured person belongs.
Contribution rate
Private-sector employees, special schemes, and civil servants:
- Contributions at 28.12% of gross income.
- Rate borne 60% by the employer and 40% by the employee (similar to current rates).
- Bonuses will be taken into account in the pension calculation.
Self-employed workers:
- Up to 40,000 euros in annual income: contribution at 28.12%.
- Between 40,000 and 120,000 euros in annual income: contribution at 12.94%.
- Proposal that a “gross” base be defined, similar to that of employees.
Other provisions:
- Consideration of insured individuals’ earned income up to a limit of 120,000 euros gross per year or 9,933 euros gross per month.
- Note that the higher the contribution ceiling, the greater the entitlement to higher benefits.
- In order to contribute to the financing of the pension system, an uncapped contribution of 2.81% (not generating rights) will also be due on all income.
An online platform has been opened to allow French citizens to express their views on pension reform. This platform is part of the citizen consultation initiative on pensions. It runs until December 2019, alongside discussions with social partners.
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