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France To Raise ‘Retirement’ Age To 62

From the Wall Street Journal:

French Labour Minister Eric Woerth speaks during a news conference to unveil details of the government’s proposed pension reform in Paris June 16, 2010.

France to Raise Retirement Age in Bid to Tame Deficit


June 16, 2010

PARIS—France announced an increase in its standard retirement age to help reduce the debt of the state-run pension system, but union leaders immediately protested and promised strike action.

The conservative government said Wednesday it would introduce a bill this summer to raise the standard minimum retirement age to 62 years old from the current 60. Labor Minister Eric Woerth said the measure—coupled with a small increase in income tax on the rich and economic growth—would allow France to fix its pension system in the next few years.

"Our objective isn’t a lower deficit but a zero deficit as early as 2018," Mr. Woerth said.

Most union leaders vowed to fight against the plan, saying the current retirement age of 60 was "non-negotiable."

Economists said the measures announced on Wednesday wouldn’t be sufficient to balance the books of the national pension system by 2018. In addition, the pension system will face increased pressure in coming years because of the upcoming retirement of the baby-boom generation—who were born after World War II and are due to retire between now and 2030.

"It will solve a small part of the problem," said Riccardo Magnani, an economist with French research center CEPII. "It won’t be enough."

Wednesday’s announcement of an incremental change showed President Nicolas Sarkozy’s strategy for avoiding battles with labor unions. His predecessor, Jacques Chirac, aimed early in his presidency to overhaul France’s generous welfare system by reducing public spending and abolishing the privileged status of some public employees. However this sparked widespread demonstrations and strikes, which led him to back down.

Which, of course, is the French way.

Mr. Sarkozy’s plan only raises the retirement age a little—and economists expect it will be followed in several years’ time by a further increase.

Other European Union countries have in recent years increased their retirement ages and cut pension payments to respond to slow growth and longer life spans. In 2007, Germany opted to gradually increase its standard retirement age to 67 from 65. Last year, Italy pegged future retirement ages to rising life expectancy.

France reduced the minimum retirement age to 60 from 65 in 1983 under Socialist President Francois Mitterrand. Unions saw this as a major social victory, ranking along with five-week annual holidays, a minimum wage and the 35-hour workweek.

More recently, France has reduced some pension benefits. But in its effort to avoid cutting monthly payments to pensioners, it has also piled up debt. If no changes are made to the system, the annual deficit of state-run pension funds could exceed €100 billion ($123.47 billion) by 2050, according to a council advising the government.

The government said Wednesday it would increase the pension payroll tax of civil servants and align it with the 10.55% level paid by workers in the private sector. Still, Mr. Woerth, the Labor minister, acknowledged that the new moves wouldn’t be enough to reduce the persistent annual shortfall—which stood at about €15 billion in 2008—in the pension scheme of state workers

So Mr. Woerth’s statements at the top of the article about fixing France’s pension plan were not quite true.

In any case, we are facing the same problem here in the US. There were very few babies born in Europe and the US from 1929 until 1946 for various reasons, such as the Depression and the two World Wars.

Consequently, we were lulled into complacency about the costs of lavish retirement benefits by these years when births were relatively low.

But all of those babies born in 1946 are now hitting retirement age in over there and here at home. And the cost of their pensions about to hit the proverbial fan.

This article was posted by Steve on Wednesday, June 16th, 2010. Comments are currently closed.

2 Responses to “France To Raise ‘Retirement’ Age To 62”

  1. Douglas says:

    We have to do the same. Social Security should have raised the age at which benefits can by paid to (a hard) 70 a long time ago. Today it should be 75. As long as that line is set high enough, there are enough people paying into the system to pay a decent stipend. But as people live longer, that age has to go up.

    • proreason says:

      Essentially true.

      The ages have to be calculated by actuaries, of course.

      The system can be permanently fixed easily by periodically adjusting the retirement age to match the country’s current demographics.

      But the rules for the people who have worked 25+ years under one set of rules have to remain in place, and changes for people below 25+ years have to be phased in.

      The current benefit levels (adjusted for inflation and the new retirement ages) should be retained, since they are about the minimum it’s possible to live in, and the tax %’s should remain the same. The are already too high.

      The entire current problem results from people living longer, and the demographics of the work force. It is simply dumb to expect the same benefits at the same retirment ages that were appropriate 20, 30 and longer years ago.

      It’s the same reason that defined benefits pensions are dead in the private sector. That method only works if lifespans DECREASE and / or family sizes increase…..neither of which is going to happen in the foreseeable future.

      This issue shouldn’t be partisan at all.

      Except, of course, that the marxists will demagogue it as they do everything else.

      And the same process should be applied to all government pensions. The current defined benefits plans HAVE to be stopped, or they will stop the country. The benefits have to periodically adjust to the money coming into the system and changing lifespans. This is well known.

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