On November 10, 2010 the French parliament passed a law introducing a major reform to the public pay-as-you-go (PAYG) system for private-sector workers. The law includes several measures aimed at delaying the transition from work to retirement, as well as a number of other changes to address issues such as easing the transition to retirement of workers in arduous and dangerous occupations, improving the employment prospects of older workers and reducing the difference in retirement income between men and women.
The recent law was originally scheduled by the government to occur in 2012, but the deteriorating financial situation of the basic old-age pension system – mainly caused by the rapid aging of the French working population - prompted the French authorities to embark on the reform in 2010.
The main provisions introduced by the new law include the following:
Raising the legal retirement age.The law gradually increases the legal retirement age from age 60 to 62 by 2018 in case of men and from age 65 to 67 by 2018 in case of women. From the financing standpoint, this is the most significant change, estimated to save the system some 20 billion euros (approximately US$ 26 billion) by 2018.
Increasing the retirement age for full benefits.The law also increases the age at which pension can be received without penalty of reduction, gradually raising it for insured persons born after 1951 from age 65 to 67 by 2018. In order to address criticism from labor unions and advocates for disabled persons - who alleged that the new provision affected workers unable to complete a full career for pension purposes – certain provisions were included allowing earlier retirement for certain subgroups of the population.
For example, workers who have been exposed to arduous and dangerous workplaces are granted an earlier retirement option and are allowed to exit the labor force at age 60, provided they are able to prove a disability evaluated at 20% of total incapacity (10% in certain exceptional cases) that is directly related to dangerous and arduous conditions experienced at the workplace. Moreover, the amount of the benefit will not be subject to an actuarial reduction regardless of the number of years of contributions to the old-age insurance program. An estimated 30.000 persons out of an annual total of 700.000 new beneficiaries are expected to benefit from this early retirement option.
Additionally, the law includes new requirements for employers to protect workers from undue exposure to dangerous and arduous working conditions. As of the year 2012, employers must maintain records of employees who are exposed on a continuing basis to physically demanding tasks as well as repetitive and high-pressured work. The records, which will also be available to workers, will include information on the type and length of exposure, as well as the preventive measures taken by the employer.
Other subgroups of the population that are eligible for early retirement options include: (i) workers who began their careers from ages 14 through 17 benefit from early retirement at age 58, (ii) mothers born before 1956 with three children, who have interrupted their working careers to raise at least one of the children, are eligible for retirement at age 65 without a reduction in benefits, and (iii) disabled workers are able to benefit from early retirement at age 55.
The new law also addresses the issue of women generally receiving less pension income than men and provides that cash maternity benefits should be fully regarded as earnings when calculating retirement benefits. Further, the new law reinforced existing measures that make it illegal to pay unequal compensation to men and women.
The annual deficit of the basic old-age pension program was estimated at 32 billion euros (approximately US$ 42 billion) in 2010 and it is projected to rise to 70 billion euros (approximately US$92 billion) in 2030 and to 102 billion euros (approximately US$135 billion) in 2050.
The percent of the population over age 60 is expected to rise from 21% in 2005 to more than 30% by 2050. Further, from 1960 to 2010, the number of active contributors for each pensioner fell from 4:1 to 1:8, respectively, with a further decline to 1:2 contributors projected by 2050.
Article with courtesy of Social Security Online
Sources: "Document d'orientation sur la Réforme des Retraites," retraites2010.fr, le 16 mai 2010; "La Réforme des Retraites," La Documentation Française, novembre 2010; "Les Principales Mesures de la Réforme des Retraites," Le Monde, le 10 novembre 2010.