Fondapol’s avenues for reforming pensions | EUROtoday

EEconomist and former social advisor to Nicolas Sarkozy on the Élysée, Bertrand Martinot proposes in a notice for the Fondapol (Foundation for Political Innovation), a liberal assume tank, to introduce a dose of capitalization into our pension system.

The Point: Why deliver the topic of capitalization again to the desk?

Bertrand Martinot: This system appears related to me, initially for causes of equity between generations. The charge of return on pay-as-you-go pensions tends to say no because the inhabitants ages. That of the present era of retirees is round 2% on common, whereas for these born after 1975, will probably be beneath 0.5%, not even the speed of return on the Livret A…

Because of demographics, there isn’t any fairness between generations. Capitalization would even be related for causes of financial effectivity: the return on the envisaged capitalization fund could be increased than financial development and would subsequently make it doable to finance the identical stage of pension with, finally, decrease contribution charges. This capitalization fund would rise to 50% of GDP within the very long run, and could be partly invested within the fairness of French corporations.

How would the system you plan work?

In the long run, capitalization would symbolize one third of the system and distribution, two thirds. It is essential to keep up the 2 pillars to diversify the dangers, which aren’t the identical. For capitalization, the chance is monetary. For distribution, it’s above all political and demographic. We should additionally protect each for causes of feasibility: we can not ask for an excessive amount of double effort for present generations.

In my state of affairs, by conference, I didn’t contact the extent of pensions or the retirement age, which doesn’t change the reasoning. The social companions would handle this fund, as they handle Agirc-Arrco at this time. This system would solely concern non-public sector workers, however might be prolonged to the general public if the foundations for calculating public pensions had been modified, which is one other topic.

Furthermore, the general public service already has a share of capitalization: the unions handle a fund of practically 45 billion euros – the Erafp. We may also think about combining this technique with points-based retirement, as in Sweden. To create a capitalization fund, you should additionally fund it. Doing so by way of further public debt could be unattainable within the present state of our public funds. It have to be financed with “real money”, that’s, further work and financial savings.

The effort ought to be collective. Workers must work extra, companies would incur further contributions, present retirees would additionally, for the primary time throughout a pension reform, be referred to as upon to contribute. The State may additionally take its half: by lowering its expenditure, it will release room for maneuver to scale back obligatory contributions and thus largely compensate for the non permanent enhance in contributions on workers and companies…

We can clearly see the problem in reforming pensions… Do you assume that is politically possible?

For the second, no. Technically, the options exist, even when the transition interval poses lots of questions. But politically… It takes braveness and a long-term imaginative and prescient. We can already hardly contact the indexation of pensions over six months in 2025, so it is off to a foul begin [le gouvernement a finalement annoncé que toutes les pensions seraient revalorisées de la moitié de l’inflation en juillet, NDLR].

To Discover



Kangaroo of the day

Answer

To assist provoke this new system, I suggest specifically a partial deindexation of pensions for a number of years. Without a radical change in political discourse, whether or not from the suitable or the left, and the attention {that a} collective effort is critical, we is not going to succeed. But the shortage of motion on the topic will make governments much more unpopular in the long run… It is best to be unpopular for the time being, and to behave.

For this to work, we should ask for a collective effort, and clarify that it isn’t to finance further public spending, however to finance the economic system, save to face the challenges of tomorrow – power transition, armed forces, delay technological, dependence, and many others. –, subsequently projecting ourselves into the long run and strengthening the fairness of our corporations in order that they make investments extra. It can be important to legally shield this technique from the predatory temptations of the State to make sure that it doesn’t hit the financial institution!