Why Macron must win his pension reform battle

Paul Taylor is a contributing editor at POLITICO.

PARIS — French President Emmanuel Macron has staked his second term — and his reputation as an economic reformer — on making the French work longer for their pensions.

His government proposes raising the official retirement age from 62, the lowest of any major country in the European Union, to 64 by 2030, and making people contribute for longer in order to receive a full pension — 43 years instead of 41.5 by 2027 instead of 2034.

After months of talks with trade unions, employers and political parties, which led Macron to drop his initial election pledge of retirement at age 65, the centrist president has taken up this unpopular but politically necessary stand on pension reform to make the French economy more competitive.

Prime Minister Élisabeth Borne has negotiated a tentative agreement with the center-right Les Républicains party to secure a parliamentary majority for the bill, and has offered sweeteners — such a minimum pension of €1,200 a month for retirees with a full contribution record, and earlier retirement for those who do physically wearing jobs or started work before age 20.

However, the biggest challenge lies not in parliament but on the streets.

Opinion polls show between two-thirds and three-quarters of voters disapprove of the reform, which Borne says is essential to save the system in which today’s workers pay for the pensions of current retirees. Without any change, even in the most optimistic scenario, the system will run a deficit of €5 billion a year by 2030.

In response, the unions have called for nationwide protests, strikes and go-slows starting today, January 19, and they aim to get a million people on the street. But it remains to be seen whether France’s poorly unionized workforce — struggling with inflation, soaring energy bills and the aftermath of COVID-19 — will stay the course for a sustained campaign of disruption.

For the last decade, electorates in most EU countries have accepted a later retirement age, largely without protest, as the inevitable economic and demographic consequence of longer life expectancy and lower birth rates, which results in fewer workers and more retirees.

It’s a matter of generational justice that as we all live longer, people should work longer for their own pension and not expect younger cohorts to carry a growing burden. Given the evolution of housing prices and the increasingly precarious nature of work contracts, boomers already possess more wealth than the young can even hope to acquire.

Only the French continue to resist this reality. They regard the unfunded pay-as-you-go state pension system as the bedrock of their social model. Attempts to introduce private pension funds or personal retirement accounts, à la the United Kingdom, have never caught on in this nation, which is both revolutionary by temperament and deeply risk-averse when it comes to managing personal finances.

Retirement at 60 for all was the great social promise delivered by former President François Mitterrand when he swept to power in 1981, heading a union of socialists, communists and left radicals. The left has historically championed shorter working time, longer paid vacation and earlier retirement as the dawn of a new society of leisure, and Mitterrand even appointed a former trade unionist as “minister of free time.”

To this day, many on the French left remain wedded to this “lump of labor fallacy,” which assumes there is a fixed amount of work that can be divided more equitably if people work 35 instead of 40 hours a week, and that retirement at 60 automatically creates more jobs for the young.

They also tend to bury their heads in the sand when faced with ample empirical evidence to the contrary — unemployment, and especially youth unemployment, in France has remained stubbornly above the eurozone average, despite the country’s 35-hour week and earlier retirement.

Attempts by center-right successors to unpick Mitterrand’s pension legacy have encountered massive resistance. Gaullist President Jacques Chirac was forced to abandon a proposed pension reform in 1995 after weeks of crippling public sector strikes. His successor, Nicolas Sarkozy, did manage to ram through an increase in the minimum retirement age, raising it from 60 to 62 in 2010, but only after months of protests sapped his authority and probably cost him reelection in 2012.

Socialist François Hollande, who defeated him, took a different approach, attempting to stealthily reform the system instead, leaving the headline retirement age unchanged but gradually raising the number of contribution years required to receive a full pension. This meant that people with a higher education or with career breaks would already have to work until the ages of 64 to 67 to receive the maximum retirement benefit.

Macron’s government, meanwhile, has held months of consultations with organized labor, but still failed to secure the crucial support of the reformist French Democratic Confederation of Labor union to break the united rejectionist front.

In parliament, both the left-wing NUPES alliance led by populist Jean-Luc Mélenchon and far-right populist Marine Le Pen’s National Rally are campaigning to reject the bill. They demand that retirement at 60 be restored for all or some workers, even though average life expectancy has risen from 74 in 1981 to 83 today.

Pensions already eat up 15.9 percent of France’s GDP, compared to the EU average of 13.6 percent — and just 12.6 percent in Germany. When asked how they would fund earlier retirement, Mélenchon and the unions insist the answer is to make bosses pay more through higher payroll taxes. Le Pen, for her part, simply evades the question.

But this is magical thinking that needs to be punctured.

The only real alternatives to later retirement are either cutting pensions — which no one wants — increasing contributions, or raising taxes, which is hardly realistic in a country that boasts the second highest tax take in Europe after Denmark.

Yet, as is often the case, the French prefer to fight over symbols rather than engage with facts and figures. The reality is that many people already retire after 62, either to secure the maximum pension benefit or because they feel fit and healthy and want to stay active and maintain their standard of living.

Another problem is that French employers don’t want to keep elderly workers on their payroll, as they cost more and are assumed to be less adaptable to new technology and working methods. Currently, only 35 percent of people aged 60 to 64 are still in full-time employment. Yet, the MEDEF employers’ association is resisting a government proposal requiring big companies to publish data on older workers in a “seniors index” for fear of being forced to retain quotas of oldies.

French bosses need to get real too. If the public is to embrace later retirement, companies must play their part by making better use of seniors. It’s in their interest.

What’s at stake in this battle is France’s image as a dynamic economy capable of adapting to the times and attracting investment — but it’s also a question of fairness between generations. Despite errors in presentation and his lack of empathy with hard-pressed workers or the unemployed, this is why Macron must win.