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STRUCTURAL ISSUES FOR

FRANCE

OCTOBER 2021

PUBLIC ENTITIES AND POLICIES

CONTINUING PENSION

SYSTEM ADAPTATIONS TO

REDUCE DEFICITS AND

STRENGTHEN EQUITY

COURT OF ACCOUNTS

CONTENTS

FOREWORD

SUMMARY

INTRODUCTION

1 - THE PENSION SYSTEM HAS BEEN REFORMED

SEVERAL TIMES, MAKING IT POSSIBLE TO CONTROL

ITS EXPENDITURES AND MAKE IT FINANCIALLY

SUSTAINABLE.

A - A succession of reforms and adaptations since

1993

B - A significant reduction in expenditures

compared to the level that would have been

reached without reform

2 - A SYSTEM MARKED BY VERY NUMEROUS AND

COSTLY EARLY RETIREMENTS, BY CALCULATION

RULES WHICH HAVE BECOME MORE COMPLEX

AND WHICH STILL PRESENT CERTAIN DISPARITIES

DEPENDING ON THE SCHEME

A - Compensation for reforms, particularly in

terms of early retirement, the cost of which is

considerable

B - A convergence between special schemes and

the general scheme have been initiated but not

completed

C - More complex rules, a source of growing

difficulties

CONTENTS

3 - THE DEFICITS FORECAST FOR THE NEXT TEN

YEARS REQUIRE CONTINUED FINANCIAL EFFORTS

WHILE ENSURING RESPECT FOR INTER- AND

INTRA-GENERATIONAL EQUITY.

A - Without further reform, the persistence of

deficits for at least ten years

B - Measures aimed at reducing the deficits, which

must also take into account considerations of

inter and intra-generational equity

REFERENCES TO THE WORK OF THE COURT OF

ACCOUNTS

COURT OF ACCOUNTS

This policy paper is part of a body of work intended to present, on several

major public policies, the main challenges that public decision-makers will

face in the coming years and the levers that could make it possible to meet

those challenges. This series of publications, which runs from October

to December 2021, is a follow-up on the June 2021 report submitted to

the President of the Republic, entitled,

Exiting from crisis: A public finance

strategy.

This summary work aims to develop, concerning a few essential

structural issues, diagnostic elements resulting from previous works by the

Court and avenues of action capable of consolidating long-term growth,

while strengthening the equity, effectiveness, and efficiency of public

policies.

The Court, in accordance with its constitutional mission of informing

citizens, wished to develop a new approach, which differs from its usual

work, and thus make its contribution to the public debate, through this

series of deliberately very synthetic and targeted notes, while taking care

to leave open the various possible avenues for reform.

This note was deliberated by the 6

chamber and approved by the Public

Report and Programs Committee of the Court of Accounts.

Publications of the Court of Accounts are accessible online on the website

of the Court and the regional and territorial chambers of accounts:

www.

ccomptes.fr

FOREWORD

COURT OF ACCOUNTS

EXECUTIVE SUMMARY

The French pension system is complex because it is made up of many schemes.

Its financing is based on the principle of pay-as-you-go, according to which the

youngest working generations finance, in particular through their contributions, the

pensions of the older generations. Its financial balance is weakened by the ageing

of the population.

In this context, the pension system has been reformed several times since 1993.

These reforms have led to a sharp slowdown in the growth of its spending and have

made it possible to initiate a convergence of rules between the schemes, which has

yet to be completed, however. Despite this, in an international comparison, pension

expenditures still represent a high share of the GDP (14.7% in 2020), the average

retirement age is lower, in particular given the frequency of early retirements,

and the average standard of living of retirees is high, greater than that of the

population. In the absence of a new reform, deficits (€13 billion in 2020), even if

out of proportion with those which were anticipated thirty years ago, would be

observed at least for another ten years.

Reducing deficits requires controlling pension spending, which is part of the

broader context of controlling social spending and the sustainable return of social

security to financial equilibrium. To achieve this, there are many parameters (age

of pension entitlement, early retirement arrangements, conditions for full pension,

pension indexing, etc.) but, ultimately, controlling retirement expenditure requires

pushing back retirement ages or reducing the relative level of pensions. The

measures should take into account considerations of equity between generations

and within each generation, while aiming to simplify the rules and harmonize them

between the schemes.

CONTINUING PENSION SYSTEM ADAPTATIONS TO REDUCE DEFICITS AND STRENGTHEN EQUITY

Key figures

•

Pension expenditures in 2020:

€338bn

, i.e.,

14.7%

of GDP

•

Number of working people to one retiree with a direct entitlement:

2.1

the early 2000’s,

1.7

currently,

1.5

in 2040

•

Average standard of living of retirees compared to that of the general

population:

103%

in 2018

•

Early retirement arrangements:

nearly 1 in 2

•

Average retirement age:

63.3 years old

in the European Union in

2017, versus

61.9 years old in France

(with strong disparities

between schemes, the average age in certain special schemes still being

57 years old or younger

)

•

Pension system deficit in 2020:

€13bn

Controlling expenditures by

changing the parameters of the

retirement age and the relative

level of pensions

Pursuing efforts to simplify rules and

harmonize between pension schemes

for better fairness and clarity of the

system

CONTINUING TO ADAPT THE PENSION SYSTEM

TO REDUCE DEFICITS AND

STRENGTHEN EQUITY

COURT OF ACCOUNTS

INTRODUCTION

As the Court recalled in its report,

A public finance strategy for exiting the crisis

last June, the French pension system is complex because it is composed of a great

diversity of organizations: basic compulsory schemes, managed by the State in

consultation with the social partners (organizations representing employees and

employers), and additional compulsory schemes, under the sole responsibility of

the social partners. The special schemes that remain are the heirs of schemes and

institutions that pre-dated the 1945 reform, in a logic of solidarity within the same

profession.

Diagram No. 1: organization of the pension system: a multitude of schemes

structured by profession

Type of pension

scheme

The 6 pension schemes for public oﬃcials

Type of pension

scheme

Additional

pension scheme

Basic

pension

schemes

CNAVPL

CNBF,

etc.

(€2.1bn)

MSA

farmers

(€6.8bn)

MSA

employees

(€6.1bn)

CNAV (general

scheme) including

SSI (€132.7bn)

Insured

status

agricultural

workers

non-agricultural workers

non-per-

manent

staff

members

civil servants

and military

oﬃcials and

judges

FPT/FPH

oﬃcials

state

workers

Insured

workers by

special

pension

schemes

Insured

status

Employers

agricultural

sector

companies

private sector: commerce,

industry, construction,

services, etc.

public law

contracts

State

public

authorities

State

SNCF,

RATP,

etc.

Employers

So-called

“integrated”

“compre-

hensive”

pension

schemes

Other

special

SNCF,

RATP,

IEG etc.

(15.6

€ bn)

FSPOEIE (€1.9bn)

RAFP (€0.4bn)

Pension

scheme for

civil servants

of the State

and the

military

(€54.6bn)

CNRACL

pension

scheme

(€21.6bn)

Supplementary pension

schemes for independent

professions (€5.9bn)

RCO

(€0.7bn)

non-agricultural

independent

workers

RCI

(€2.1bn)

Supple-

mentary

pension

schemes

Agirc-Arrco

(€81.6bn)

Inde-

pendent

profes-

sions

farmers

pension

schemes

Ircantec

(3.4 €

bn)

Source: 2021 Finance Bill - The amounts correspond to those of the legal benefits provided by the

compulsory pension schemes in 2019

CONTINUING PENSION SYSTEM ADAPTATIONS TO REDUCE DEFICITS AND STRENGTHEN EQUITY

Compulsory retirement expenditures represented €338 billion in 2020, or 14.7% of

GDP. Their financing is essentially based on the principle of distribution - a choice

that has been the basis of the French pension system since 1945: contributions

from active workers are used immediately to pay pensions, while giving them

entitlements for their future retirement. The share of funded schemes out of all

pension expenditures remains very marginal. In addition to compulsory retirement

expenditures, the benefits paid under the supplementary retirement (or retirement

savings) contract represented only €6.9 billion in 2019. This choice of mainly pay-

as-you-go financing, which is based on trust and solidarity between generations, is

at the heart of our social pact. The youngest agree to finance the retirement of the

elderly, anticipating that the generations which will succeed them will do the same

for them.

In order to last, this system assumes that its financial equilibrium is guaranteed

over the long term. This equilibrium depends on fundamental economic and social

data: demographics (fertility, mortality and migratory balance on which the ratio of

active/retirees depends) but also economic activity (growth, unemployment, etc.).

To consolidate pay-as-you-go financing, the French pension system has been

reformed several times over the past thirty years. Successive reforms have

contributed to sharply slowing the growth in spending, and their effects will

continue to unfold over the next decades. However, the persistence of deficits,

currently accentuated by the health crisis, raises the question of new adjustment

measures.

These developments could follow on from past reforms and concern the

parameters of the system, or be part of a structural reform, such as that specified

in the universal pension system bill.

COURT OF ACCOUNTS

1 - THE PENSION SYSTEM HAS BEEN REFORMED SEVERAL TIMES,

MAKING IT POSSIBLE TO CONTROL ITS EXPENDITURES AND MAKE

IT FINANCIALLY SUSTAINABLE

A - A succession of reforms and

adaptations since 1993

The ageing of the population undermines

the balance of the pension system. The

demographic ratio of 20-59 year-olds to 60

year-olds and over has fallen from 3 in 1960

to 2.8 in 1990, then to 1.9 in 2020. This decline

accelerated from 2006 with the of

baby boom

generations born after 1946 beginning to

turn 60. It is also explained by the continuous

increase in life expectancy, particularly in life

expectancy at age 60 which rose, between

2000 and 2020, from 25.6 to 27.3 years for

women and from 20.4 to 22.7 years for men.

In twenty years (1993-2014), to cope in

particular with the ageing of the population,

the pension system has undergone five major

reforms affecting basic pensions. These are

referred to as “parametric” reforms, because

they have modified the operating parameters

of the system (contribution rate, duration,

retirement ages, etc.) without calling into

question its logic or its structure. In addition

to measures to increase contributions, these

reforms have mainly led to a review of the

pension calculation rules.

CONTINUING PENSION SYSTEM ADAPTATIONS TO REDUCE DEFICITS AND STRENGTHEN EQUITY

Supplementary schemes have also been

adapted.

All the age and insurance period measurements

mentioned in the table above have been

transposed to the compulsory supplementary

schemes. The social partners, managers of

the supplementary scheme for private sector

employees (Agirc and Arrco, merged in 2019),

signed around ten agreements since 1993,

which have led to each euro contributed to these

schemes creating less entitlement to retirement

benefits than in the past, in order to maintain

Agirc-Arrco’s solvency over the long term.

The latest agreements of 2015, 2017 and

2019 were particularly innovative: for the

first time, the social partners have chosen

to act on the retirement age, by de facto

postponing the permissible age by one year to

benefit from a full-rate supplementary pension

(since 2019, the supplementary pension has

thus been reduced by the application of a

solidarity coefficient of 10% for 3 years within

the limit of the age of 67 years, if the insured

persons collect their pensions at full rate,

unless they delay their retirement by one year).

On the other hand, they adopted prudential

regulations under the terms of which the

financial reserves of the Agirc-Arrco scheme

must not be less than six months of benefits

within 15 years and pensions must evolve in

line with wages, possibly minus a “sustainability

factor” to take into account the economic

situation as well as demographic trends.

Table 1: Reforms of basic pension parameters since 1993

1993

Basic pension

schemes for

employees and

non-employees in

the private sector,

including the

general scheme

•

Confirmed indexing of pensions - as well as wages taken into account

for the pension calculation - to prices.

•

Increase from 10 to 25 for the number of best years taken into account

for the reference wage (generations 1933 to 1948).

•

Extension of the insurance period required for the full rate from 150 to

160 quarters (1933 to 1944 generations).

2003

All basic pension

schemes, including

those of the civil

service, but

excluding other

special pension

schemes

•

Extending the indexing of pensions to prices to civil service pension schemes.

•

Extending the insurance period for civil servants, to align it with that of

the general scheme from the 1948 generation.

•

Continued lengthening of the insurance period for all pension schemes from

160 to 164 quarters (1948 to 1952 generations), then according to the gains

in life expectancy (up to the 1960 generation).

•

Gradual introduction of a discount/premium system harmonized between all

the pension schemes, which reduces or increases the amount of the pension

when the duration is shorter or longer than that required for the full rate.

•

Creation of an early retirement system for long careers.

2008

Certain special

pension schemes

•

Extending the 2003 provisions to other special pension schemes (SNCF,

RATP, electricity and gas industries, etc.) according to a staggered schedule.

2010

All basic pension

schemes

•

Two-year increase in the legal retirement ages, from 60 to 62 for

the minimum age and from 65 to 67 for the age for cancelling

the discount (1950 to 1955 generations).

•

Confirming the extension of the insurance period introduced in 2003

up to the 1960 generation.

2014

All basic pension

schemes

•

Insurance period increased to 172 quarters from the 1973 generation,

at the rate of one quarter every three generations.

•

Creation of an early retirement arrangement in respect of the arduous

nature of the work under the general scheme.

COURT OF ACCOUNTS

The

convergence of special schemes

including that of the civil service, with the

general scheme is

largely started

, even if

specificities persist, in particular in terms of

retirement age, reference salary for calculating

the pension, solidarity measures linked to

children and reversion in the event of widow/

widowerhood.

B - A significant reduction in

expenditures compared to the

level that would have been reached

without reform

According to INSEE, without the basic

pension reforms that have taken place

since 1993 and the switch to price

indexing, pension expenditures in

relation to GDP would have represented

17.6% in 2020 and more than 19% in

2030, so that they are now limited to less

than 14%, excluding the current effects

linked to the health crisis.

The most significant savings result from the

move to indexing to inflation and no longer on

the increase in wages, for retirement pensions

as well as for wages taken into account for the

pension calculation. In a period when inflation

was lastingly lower than the rise in wages,

this measure, initiated in 1987, made possible

savings of around €40 billion on annual pension

expenditures currently paid and has, thus,

allowed the sustainable maintenance of the

system. According to INSEE, this measure alone

may have saved 1.8 percentage points of GDP

in 2020, against 2.3 percentage points for all

the other reform measures taken since 1993. In

2030, it may even lead to savings at least equal

to those resulting from all the other measures

(around 2.7 percentage points of GDP). The

magnitude of these savings depends on the

growth differential between wages and prices.

Indexing to prices makes pension expenditures

relative to GDP sensitive to the growth rate

of the economy: the stronger the growth, the

more wages increase in relation to prices, which

helps to curb pension expenditures as a share

of GDP; conversely, the weaker the growth, the

more pension expenditures as a share of GDP

increase. Indexing to wage growth, corrected

for a sustainability factor, like the principle

retained for Agirc-Arrco, would avoid this

strong dependence on growth while containing

the increase in pensions.

With regard to the extension of the period

required for the full rate (insurance period),

the increase in the allowable savings is very

gradual. According to the Ministry of Health’s

Directorate of Research, Study, Evaluation,

and Statistics (DREES), if the roll-out of this

extension for the assets concerned between

2020 and 2035 (following the 2014 reform)

would reduce the mass of pensions by €5.5bn

in 2030 and €10.2bn in 2040.

Conversely, the effects of the reduction in the

legal retirement ages decided in 2010 were

more immediate: again according to DREES,

they would result in savings of €18.9 billion in

2020. But, by 2040, the savings would only be

€12.2 billion, which is the same as lengthening

the insurance period. Lowering the legal ages

would thus contribute to expenditure savings

linked to reforms since 2010 to the tune of 80%

in 2020, but only one third in 2040.

For the supplementary schemes, the savings

linked to the Agirc-Arcco agreements since

2011 would represent €5.2 billion in 2020,

which is in addition to those resulting from the

reforms of the base pension schemes.

CONTINUING PENSION SYSTEM ADAPTATIONS TO REDUCE DEFICITS AND STRENGTHEN EQUITY

Pushing back the retirement age,

however, leads to an increase in other

social expenditures, for example for

unemployment or disability

With the raising of the legal minimum

retirement age, people who cannot extend

their employment are added to the recipients

of such social benefits, and the people affected

by these allowances remain beneficiaries

for longer. However, this deferral to social

expenditures is not taken into account in

previous evaluations. The expenditures

incurred however reduce the amount savings

achieved or expected. Thus, raising of the legal

minimum age from 60 to 62 years would have

caused in 2017, at the end of its increase in

costs, of the order of €3 billion in additional

social expenditure (including approximately

€800 million for insurance). Unemployment,

€700 million for social minima and €1.2 to

€1.5 billion in disability expenses, or around

20% of the gain made that year on retirement

expenses.

Finally, despite these reforms - which

severely limited their growth - the share

of pension spending to GDP remains

high in France compared to other OECD

countries.

Graph No. 1: share of pension expenditures to GDP in 2017

Interpretation: in 2017, pension spending (public and private) represented 10.3% of GDP in Canada, including 4.8%

of GDP for public pension spending and 5.5% for private pension spending.

Note: Countries are ranked in ascending order of the share of public pension expenditures to GDP in 2017.

Source: Panorama of pension systems in France and abroad, 15

report of the Pension Orientation Council,

December 2020

4.8%

5.2%

5.6%

7.1%

7.2%

9.4%

10.2%

10.5%

10.9%

13.6%

15.6%

5.5%

4.6%

5.2%

5.3%

3.1%

2.5%

0.8%

1.1%

0.3%

1.1%

-2%

10%

12%

14%

16%

18%

20%

Canada

Netherlands

United Kingdom

United States

Sweden

Japan

Germany

Belgium

Spain

France

Italy

Public

Private

9.1%

2.7%

Countries

monitored

by COR

Also by comparison with other OECD countries, the retirement ages observed, as well as the legal

ages of entitlement, are on average lower.

COURT OF ACCOUNTS

The relatively high level of pensions contribute

to the fact that the average standard of living of

retirees today is higher than that of the general

population. In 2018, the average standard of

living of retirees was 2.9% higher than that

of the general population. That difference

is as high as 9.1% if we take into account

the fact that retirees more often own their

homes. Among the eleven developed countries

monitored by the Pension Orientation Council

(COR), it is in France, where it reached 103.2%

in 2016, that the average standard of living

of people over 65 compared to that of the

population as a whole is the highest. This ratio

is also very close to 100% in Italy, but around

85% in the United Kingdom, Sweden and the

Netherlands, 90% in Germany and 95% in

the United States and Spain. The trade-off for

the indexing measures mentioned above is a

relatively slower increase in the resources of

retirees compared to those of active workers.

However, this effect is gradual and is not yet

fully visible.

Finally, the poverty rate of retirees is much

lower than that of the population as a whole

(8.7%, against 14.8% in 2018). It is also lower

than the poverty rate for retirees in other

developed countries monitored by the COR,

with the exception of the Netherlands.

Unevenly distributed efforts:

all in all,

despite the solidarity and equity measures

that accompanied them, the reforms, through

general measures, would weigh more heavily

on those insured with low wages or having left

employment early. For example, for the 1980

cohort, the cumulative pension loss linked

to the reforms since 2010 would be more

than 10% for those insured outside the labour

market from the age of 50, against 3.4% for

those with high salaries. In particular, such

pension holders have been more strongly

affected by the raise in legal ages, especially

the raised age for cancelling the discount from

ages 65 to 67, which concerns them more

because of shorter careers. In addition, the

redistributions conducted solely by the rules

for calculating pensions, without taking into

Graph No. 2: Ages for opening pension entitlements as at 1

January 2021 and eventually

58 years

60 years

62 years

64 years

66 years

68 years

70 years

Canada

Sweden

United States

France

Japan

Belgium

Spain

Germany

United Kingdom

Netherlands

Italy

Scheduled

Eventually

In 2021

Source: Annex of the 2021 Finance Bill on public service pensions and data in 2020

CONTINUING PENSION SYSTEM ADAPTATIONS TO REDUCE DEFICITS AND STRENGTHEN EQUITY

account explicit solidarity measures (minimum

pensions, family pension entitlements, etc.),

overall increase inequalities to the detriment

of pension holders with a short career,

therefore pension holders with lower wages

and women in particular. These redistributions

are linked to several factors: non-linearity of

the period calculation validated in the basic

annuity schemes, calculation over only part

of the career of the reference earned income

in such schemes, dependence on discounts

and premiums on both the retirement age

and the insurance period for all schemes,

superimposition of basic and supplementary

schemes, or differences in rules between

schemes.

2 - A SYSTEM MARKED BY VERY NUMEROUS AND COSTLY EARLY

RETIREMENTS, BY CALCULATION RULES WHICH HAVE BECOME

MORE COMPLEX AND WHICH STILL PRESENT CERTAIN DISPARITIES

DEPENDING ON THE SCHEME

A - Trade-offs for reforms, particularly

in terms of early retirement, the cost

of which is considerable

The reforms occurring since 2003 provided

for specific solidarity and equity measures

intended to limit the unfavourable effects

on certain categories of contributors. Thus,

exemptions concerning the legal minimum

retirement age have been introduced for long

careers (from 2003) and arduous work (2010,

2014). Measures have also been taken in favour

of women and small pensions (such as the

increase in the minimum contribution for the

quarters paid in 004 or the reduction in the

salary necessary to validate a quarter in the

general scheme from 200 to 150 minimum

wage hours, allowing a third-time employee

paid the minimum wage to validate four

quarters per year in 2014).

Early retirement arrangements are the cause

of nearly one in two retirements. These

exemptions, which concerned around 400,000

new retirees in 2017, have a high cost for the

community (around €14 billion in 2016). For

the measures provided for by the 2014 reform

alone, the cost would be €0.7bn in 2020, €2.7bn

in 2030 and €4.1bn in 2040, according to the

estimates of the impact study conducted for

the bill.

Early retirement for long careers

Among the measures derogating from the legal minimum age, the most

significant today is the so-called long careers arrangement, which is open

to all and whose associated costs are significant (€6.1 billion in 2016). The

flow of early retirements for long careers reached a high point in 2017.

The gradual increase in the length of insurance period required to benefit

from the full rate and later entries into the labour market have resulted

in a reduction in the number of early retirements under this system since

2018. This reduction is nevertheless very gradual since, according to CNAV

projections, it is only in the mid-2030s that early retirements for a long career

would return to their 2009 level.

COURT OF ACCOUNTS

Others early retirement arrangements are specific

to certain sectors: employees in the private sector

may benefit, due to the arduous nature of their

work, from an early retirement by up to two years;

some civil servants occupy “active” job categories

presenting “

a particular risk or exceptional fatigue

”,

which allows an early retirement by five years

(professional firefighters, nursing assistants, etc.)

or even ten years (police officers, sewer workers,

etc.) compared to the “sedentary” categories.

These reasons for early retirement exist in the

other special schemes, in particular at SNCF,

where they are generalized, and at RATP, where

the possibilities of ten years’ early retirement

are frequent. Thus, the average retirement age

in 2019 was around 63 years for sedentary civil

servants and employees in the private sector,

around 59 years for civil servants in the active

category, around 57 years at SNCF and around 56

years at RATP.

These measures, known as “age measures”,

contribute to the fact that the average

retirement age is lower in France than in most

other countries. The European Commission

estimates this average age at 61.9 years in

2017, compared to 63.3 years across the

European Union (including 64.3 years in

Germany, 64.4 years in the United Kingdom

and 65.3 years in Sweden).

All in all, the reforms have made it possible

to contain the fall in the number of working

people compared to the number of retirees

with direct entitlement (therefore excluding

retirees only benefiting from a survivor’s

pension), without halting it, however. The

number of working people to one retiree with

direct entitlements has gone from 2.1 at the

start of the 2000s to 1.7 today, and would only

be 1.5 in 2040.

B - A convergence between special

schemes and general scheme

initiated but incomplete

The reforms, since the reform of 2003, have

reduced the inequalities of treatment between

insured persons under different schemes and

have very significantly brought the parameters

of the general scheme and most of the special

schemes closer together, starting with those

of the civil service. The main measures of the

2010 and 2014 reforms have indeed concerned

all the schemes, but based on the staggered

application timetables for special schemes

other than those for the civil service.

Civil service pensions: rules now partly aligned with those of

the general scheme

The 2003 reform converged the insurance period required for the full rate

of civil servants towards that of private sector employees and extended

to civil servants the principle of revaluation of pensions based on prices. It

generalized and harmonized the discount and premium system between

civil servants and private sector employees, with a convergence period of

nearly 20 years for the discount. Following the 2010 reform, the convergence

also focused on aligning the contribution rates of pension holders, with

implementation over a ten-year period.

CONTINUING PENSION SYSTEM ADAPTATIONS TO REDUCE DEFICITS AND STRENGTHEN EQUITY

The other special schemes, in particular those

of the RATP, the SNCF and the electricity and

gas industries (IEG), began to be reformed

from 2008. These reforms were acquired at the

cost of a significant spread of their effects over

time and of generous support to guarantee

their social acceptability. All the reforms thus

entered into force with a significant delay

compared to the other schemes, of 4.5 years

for the 2008 reform relating to the insurance

period in relation to the civil service and 14.5

years in relation to the general scheme. The

two-year increase in the legal retirement age

decided in 2010 will not be fully effective until

2024, against 2017 for the other schemes;

the new extension of insurance periods

provided for by the 2014 reform has also been

postponed to take into account the timetable

for the 2008 and 2010 reforms.

Certain differences and peculiarities remain,

depending on the specificities of the schemes

concerned. Among the rules that are still

different between the private and public sectors,

in particular we find that of the reference salary

(the 25 best annual salaries in the general

scheme, compensation excluding bonuses

for the last six months in the civil service), the

definition of the contribution base (the full

salary under the general scheme, compensation

excluding bonuses in the civil service) and the

possibilities of early retirement, with the “active”

categories, seen previously. Among the other

differences, in particular are the calculation of

the duration (one quarter validated for a salary

of 150 minimum wage hours under the general

scheme, prorated by the working time for civil

servants), the distinction between basic and

supplementary pensions (only in the private

sector), solidarity measures linked to children

(increase in the insurance period of up to one

year per child for civil servants, against two

years under the general scheme) and reversion

in the event of widow-/widowerhood (subject to

resources under the general scheme but not for

civil servants).

According to the Ministry of Health’s

Directorate of Research, Study, Evaluation, and

Statistics (DREES), if the pension calculation

rules for private sector employees were to be

used for Public civil servants born in 1958,

for example, their retirement age would be

significantly different: 62% could benefit from

the full rate at the same age, 27% later (active

categories) and 11% earlier (especially women

benefiting from increases in the insurance

period for children). The impact on the amount

of pensions would be low on average but highly

variable depending on the insured.

Inequalities in pension treatment, linked

to the existence of different rules, can also

be observed between insured persons with

an international career and those with

an equivalent career in France, despite

international coordination on compulsory

retirement. In particular, the self-employed are

often excluded from the benefit of bilateral

agreements: careers carried out in more

than two countries (at least one of which is

outside Community regulations) do not make

it possible to add up the time spent working in

all countries, even when bilateral agreements

with those countries exist; resumption of

professional activity after one’s pension has

started to be paid under the general social

security scheme allows for extra pension

entitlements and may result in a revised

pension calculation in France, but only if the

activity is resumed abroad. Such a recalculation

cannot happen when the resumed professional

activity takes place in France.

COURT OF ACCOUNTS

C - More complex rules, a source of

growing difficulties

While pursuing a goal of equity, the succession

of reforms has contributed to complicating

the rules on retirement, which are already

difficult to understand by pension holders

who are frequently affiliated with several

pension schemes because of their professional

background. This complexity can be difficult

to manage for pension schemes and can

facilitate errors or the fraudulent collection of

pensions. At the same time, the old age branch

of the general scheme has not adopted any

risk management arrangements up to the

challenges, in particular to handle management

interactions with other pension schemes. This

situation poses in particular difficulties in the

proper payment of pensions, which the Court

noted, particularly for the pension minimums

and for the old age minimum.

The cap since 2012 of the pension minimum paid by the

general scheme, a source of complexity

Some retirees, affiliated with several basic schemes, receive pensions which

can be high in total but whose portion paid under the general scheme is very

low. To prevent such members from benefiting from the minimum pension

paid by the general scheme (entitled “contribution minimum” or MICO),

which may increase the amount of the general scheme pension when it is

low, the legislator has provided that from 2012, the MICO was not to be paid

in full since it raised the sum of the retirement pensions received above a

certain amount (under all the schemes concerned).

The introduction of this capping mechanism has made the MICO award

procedure and the calculation of its amount much more complex, which

depend on information from other pension schemes. Among the pensions

paid in 2017, 37% were potentially eligible for the MICO before the cap was

taken into account but, at the end of 2018, only 26.1% had been able to

be processed and give rise to the calculation of the cap. Thus, at that date,

the data relating to the other pensions of the insured - necessary for the

determination of the MICO - remained unavailable for 10.9% of the pensions

paid out, representing nearly 30% of potentially eligible cases, i.e., nearly

70,000 cases. Within this backlog, just over one quarter benefited from the

payment as an advance of a provisional amount pending a regularization

thus involving subsequent risks of undue hardship, and for the remaining

three quarters, the MICO was neither calculated nor served (thus likely to

lead to recalls).

CONTINUING PENSION SYSTEM ADAPTATIONS TO REDUCE DEFICITS AND STRENGTHEN EQUITY

More generally, the errors of a definitive nature

which affect the retirement benefits newly

granted by the general scheme have continued

to increase, even though the old age branch

is the one whose usual functioning was the

least affected by the pandemic. Thus, between

2016 and 2020, the proportion of pensioners

affected by a financial error fell from 11.5% to

16.4% - which means that one in six benefits

newly awarded or revised in 2020 included

at least one financial error in favour of or to

the detriment of the insured - and such errors

represented 1.9% of the amount of the new

benefits paid in 2020, compared to 0.9% four

years earlier.

The errors relating to the monthly amount of

retirement pensions affect the situation of the

insured and the expenses of the old age branch

throughout the duration of the service of such

benefits. Thus, the errors that occurred in 2020,

if they are not researched and corrected

posteriori

, will have a cumulative financial

impact of €1.6 billion over the entire payment

period of such benefits to newly retired people

(compared to €1.1 billion for errors made the

previous year, in 2019).

Fraud and errors in the payment of the old age minimum

Almost 75% of the fraud detected in the old age branch concern the old

age minimum, mainly for non-compliance with the residence or resources

conditions (these represent 71% of the amount of damages suffered in

this respect, while fraud only concerned 3.5% of retirees with their own

entitlements and 2.1% of benefit amounts in 2019).

The frequency of errors continued to increase in 2020, reaching 23.8% for

the old age minimum. Thus, nearly one in four pension calculations includes

at least one error, which in 75% of cases is to the detriment of retirees. This

situation is partly due to the complexity of the eligibility rules, including

the conditions of residence and regularity of the stay, and to the still non-

dematerialized exchange of information with the applicant.

Weaknesses of the internal control

mechanisms of the minimum old age pension

were documented by the Court in a Pension

division financial statements audit, as well as in

its recent report on social benefits fraud.

COURT OF ACCOUNTS

3. THE DEFICITS FORECAST FOR THE NEXT TEN YEARS REQUIRE

CONTINUED FINANCIAL EFFORTS WHILE ENSURING RESPECT FOR

INTER- AND INTRA-GENERATIONAL EQUITY.

A - Without new reforms, the

persistence of deficits for at least ten

years

Projecting the financial situation of the pension

system is a complex exercise, which is based

on many assumptions: growth in economic

activity, demographic trends (births, deaths

and net migration), level of State intervention

to subsidize the schemes, etc.

In its latest annual report, the Pension

Orientation Council (COR) notes that the

share of pension expenditures to GDP

reached a particularly high level in 2020, at

14.7%, mainly due to the contraction of the

activity, while pensions indexed to prices are

insensitive to economic conditions. It predicts

that this ratio should decrease from 2021 with

the rebound in activity, return to a near pre-

pandemic level from 2022, and then remain

until 2030 at around 13.7% of GDP. Beyond

that, the COR anticipates that this ratio will

decrease, given the full effects of past reforms,

despite the ageing of the French population

(to establish this projection, in 2021 the COR

revised downward the fertility hypothesis to

1.8 children per woman and no not 1.95, as

well as that of life expectancy, of -1 year in

2040, for example).

In total, pension expenditures as a percentage

of GDP would decline mainly due to the fall

in the average pension compared to average

earned income (the average pension would

continue to grow in constant euros, but less

quickly than the average earned income): this

ratio is currently 50.1% and in 2040 it would be

between 41.5% and 44%. This decline would be

all the greater the stronger the growth.

However, the fall in the share of pension

expenditures to GDP does not mean that

there is no problem with funding pensions.

Indeed, the deficit of the entire pension system

widened massively and reached €13 billion in

2020 (taking into account the one-off payment

of €5 billion from the Reserve Fund for

pensions in the old age branch of the general

scheme), i.e. 0.6% of GDP, including €3.7 billion

for the old age branch of the general scheme

(CNAV), €2.5 billion for the old age solidarity

fund, and €5.6 billion for the supplementary

schemes for private sector employees.

This sharp deterioration in the deficit is said

to be essentially tied to the current situation.

However, the deficits, even if they are out of

proportion with those which were anticipated

thirty years ago in view of past reforms, may be

observed at least for another ten years.

CONTINUING PENSION SYSTEM ADAPTATIONS TO REDUCE DEFICITS AND STRENGTHEN EQUITY

The extent of future deficits in the pension system

Price indexing makes pension expenditure relative to GDP sensitive to the

rate of growth of the economy. According to the latest COR projections,

pension expenditures as a share of GDP in 2040 would thus be between

12.8%, with the highest productivity growth assumption used (1.8% per year)

and 13.6% with the lowest assumption (1% per year). The financial situation

of the pension scheme is closely related to the overall expected growth in

GDP: the lower the growth, the more deteriorated the situation. However, it

is not excluded that growth could be even lower than that envisaged by the

COR in its least favourable scenario.

The deficits appearing in those pension schemes which do not benefit from

balancing subsidies would remain significant over the next 25 years: from

-0.2 to -0.5% of GDP per year on average from 2021 to 2045 depending on

whether we use the most favourable (1.8% per year) or least favourable (1%

per year) COR growth forecasts. At the same time, the state budget should

be less used to continue to balance the state civil service scheme and other

special schemes which benefit from a balancing subsidy. In the assumption

examined by the COR, where this lower financial effort was offset by subsidies

to schemes which do not currently receive any (particularly the general

scheme), so that the GDP share of the State contribution to the pension

system remains constant, the pension system as a whole would be close

to equilibrium, with a surplus or deficit of 0.1 percentage point of GDP on

average per year over the 2021-2045 period. But, even in this case, the near

balance over 25 years does not exclude short-term residual deficits, reaching

up to - 0.2% of GDP around 2030, before being absorbed more or less quickly.

COURT OF ACCOUNTS

3.2. Measures aiming at reducing the

deficits, which must also take into

account considerations of inter and

intra-generational equity

The reduction of deficits in the pension

system thus raises the question of the level of

retirement expenditures, which are determined

by the retirement ages and the amounts of the

pension, as well as its financing, as pointed out

by the Pension Monitoring Committee in its

opinion of July 2021.

With regard to financing, the room for

manoeuvre for further increases in contribution

rates appears limited, since France already

has the highest compulsory levy rate in the

European Union.

Controlling retirement spending is part of the

broader context of controlling social spending

and the sustainable return of social security to

financial equilibrium, which requires reducing

the trend in social security spending, through

a continuous effort, below potential growth, as

the Court has regularly recalled in its annual

reports on the application of social security

financing laws.

New measures could make it possible to control

increases in pension expenditures. There are

many parameters to achieve this, whether it

be the age at which pension entitlements are

granted, the age conditions and insurance

period for a full pension, discount and premium

mechanisms, rules for calculating the pension

or indexing the pensions paid. Ultimately, the

control of pension expenditures would result

in later retirement ages or a fall in the relative

level of pensions.

Such measures must take into account

considerations of equity between generations

and within each generation. The possible

adaptations of the pension system thus

have distinct effects on current and future

working and retired people, depending on their

professional situation, their career profile and

their wealth. A precise analysis of their impacts

is necessary in order to preserve the situation

of economically or socially vulnerable people.

CONTINUING PENSION SYSTEM ADAPTATIONS TO REDUCE DEFICITS AND STRENGTHEN EQUITY

From this point of view, the question of the

effective retirement age is inseparable from

actions involving the social partners and the

companies themselves, aimed at promoting

the retention of employees in employment.

Particular attention must be paid to early

retirement mechanisms, avoiding measures

that are too general in scope, and paying more

attention to taking into account the arduous

nature of jobs, by reviewing them and targeting

them more narrowly, both in the private sector

and in the civil service (active categories), as

recommended by the Court during recent

audits.

Regarding the relative level of pensions, it is

important to take into account the diversity of

situations among retirees, while preserving the

lowest pensions. We also note that the average

standard of living of retirees is higher than that

of the general population, and that the younger

generations should not benefit from this

favourable situation once they retire. Under

the gradual effect of past reforms, the average

pension for retirees is expected to increase

more slowly than average earned income,

leading to a lower increase in living standards

for retirees than for the general population.

In the future, without further reforms, the

average standard of living of retirees will once

again fall below that of the general population

(from 5 to 10% in 2040).

In addition, the simplification of the rules

and their harmonization between schemes,

whatever the modalities, which may range

from the pursuit of the gradual convergence of

the parameters of the different schemes to the

merger of all the schemes into a unified system,

remain desirable goals.

Inter-generational equity, intra-generational equity

Inter-generational equity consists in seeking a fair distribution of the efforts

that must be made by retirees on the one hand, and working people on the

other. The questions that arise, for example, are the following: how far can we

reduce the relative level of pensions, while preserving the lowest pensions?

To what extent can we reduce the average retirement period (a period of

time which, in the absence of new reforms, would tend to stagnate over

generations)?

Intra-generational equity consists in seeking the fair distribution of the efforts

that must be made by contributors or members of the same generation

according to their sector of professional activity and their membership in a

specific scheme. It involves seeking to objectively correct unfair situations.

It refers, for example, to the fact that past reforms have placed more strain

on people with low wages and that the current pension rules are more

unfavourable to them. It also refers to unjustified differences in rules between

pension schemes, for objectively comparable situations.

COURT OF ACCOUNTS

More generally, in its June 2021 report

entitled,

Exiting from Crisis: A public finance

strategy

, the Court recommends continuing

to adapt pension schemes in order to control

the rise in expenditures and to improve its

equity. It emphasizes that a resumption of

the pension system reform or an adjustment

of the parameters of entitlement or pension

calculation would require enhanced expertise

to help reach a common understanding of

the issues at stake, an in-depth and broad

consultation of stakeholders, and an

implementation schedule that is sufficiently

spread out to facilitate acceptance and allow

private employers to make the necessary

changes.

The Court’s recent pension recommendations

In its 2016 report on Public service pensions, the Court highlighted various

pathways for reform, which remain fully relevant: particularly, the need to

maintain efforts to make calculation rules converge between the public

and private sectors, the need for harmonization of family and marital

retirement entitlements, and the systematic review in the event of categorical

negotiation of the scope of professions falling under “active categories”.

For special pension schemes of the RATP (Paris Underground), the SNCF

(France Railways), and the electricity and gas industries (IEG), in 2019 the

Court reiterated pathways for reform, recommending that the rules of these

schemes continue to be harmonized with those of the civil service and to

finance the cost of the specific entitlements of the various schemes, at

least for future entitlements, through contributions from companies and

employees. It indicated that, with a view to the establishment of a universal

pension system, such measures would be part of a wider movement to

harmonize the rules and the usefulness of their implementation would be

linked to the length of the transition period to the new system.

Among the specific entitlements of special schemes, including those of the

civil service, are the possibilities of early retirement, which has become the

majority. In 2019, when examining the various arrangements that allow

derogations from the legal retirement age, the Court recommended, in

addition to re-examining the scope of professions falling under the active

categories and, within those professions, the positions that entitle employees

to early retirements (due to arduousness), stabilization of access to the

so-called “long career” system - the successive extensions of which have

made it the most frequent early retirement method today.

CONTINUING PENSION SYSTEM ADAPTATIONS TO REDUCE DEFICITS AND STRENGTHEN EQUITY

REFERENCES TO THE WORK OF

THE COURT OF ACCOUNTS

The Court has carried out a great deal of work in recent years on which it has drawn,

in particular the following publications:

The old age minimum and the back-to-school allowance: a strong contribution to

poverty reduction, contrasting management performance (Le minimum vieillesse

et l’allocation de rentrée scolaire : une contribution forte à la réduction de la

pauvreté, des performances de gestion contrastées),

Report on the application of

social security financing laws (Ralfss) 2021, chapter X, October 2021;

Exiting from Crisis: A public finance strategy (Une stratégie de finances publiques

pour la sortie de crise),

June 2021;

Report on the certification of the accounts of the general social security system,

fiscal year 2020 (Rapport sur la certification des comptes du régime général de

sécurité sociale, exercice 2020),

May 2021;

International coordination in matters of compulsory retirement, referral (La

coordination internationale en matière de retraites obligatoires, référé),

March 2021;

The rise in expenditures on family benefits and pension insurance: reforms

and important effects for the insured (L’évolution des dépenses de prestations

familiales et d’assurance retraite : des réformes et des effets importants pour les

assurés),

Ralfss 2020, chapter III, October 2020;

Minimum retirement pensions: a complex system whose logic has become

uncertain (Les minima de pension de retraite : un système complexe à la logique

devenue incertaine),

Ralfss 2020, chapter VII, October 2020;

The fight against fraud in social benefits (La lutte contre les fraudes aux prestations

sociale),

communication to the Senate Social Affairs Committee, September 2020;

The Agirc-Arrco supplementary pension: recovery and rationalization efforts to be

continued (La retraite complémentaire Agirc-Arrco : des efforts de redressement

et de rationalisation à poursuivre),

annual public report 2020, volume I, chapter

4, February 2020;

Retiring earlier: numerous and unequally justified measures, a necessary

redefinition (Partir plus tôt à la retraite : des dispositifs nombreux et inégalement

justifiés, une redéfinition nécessaire),

Ralfss 2019, chapter V, October 2019;

End of career: a risk of precariousness for seniors excluded from the labor market, an

increasing cost for solidarity (Les fins de carrière : un risque de précarité pour les séniors

exclus du marché du travail, un coût croissant pour la solidarité),

referral, July 2019;

The special retirement schemes of the RATP, the SNCF and the electricity

and gas industries (Les régimes spéciaux de retraite de la RATP, de la SNCF et

des industries électriques et gazières),

communication to the Social Affairs

Committee of the National Assembly, July 2019;

Retirement pensions for civil servants: changes to be pursued (Les pensions de retraite

des fonctionnaires : des évolutions à poursuivre),

thematic public report, October 2016.

The publications of the Court of Accounts are available on the website:

www.

caccounts.fr

This report is available on the Court of Accounts website:

www.ccomptes.fr

STRUCTURAL ISSUES FOR

FRANCE

OCTOBER 2021