During the Olympic break, French political life is moving slowly. Emmanuel Macron is trying to buy time before accepting the nomination of a new Prime Minister in France. Several issues are on the table that will shape the economic future of the Eurozone's second-largest economy, including the French pension system. The political battle between the Left and the Right is raging in France.

What is your analysis of the challenge to Emmanuel Macron's pension reform in the economic programs of the Left and Right blocs? Is it serious to suggest a return to retirement at 60, as proposed by Lucie Castets, who is being considered by the French Left for the position of Prime Minister?

It is not responsible to claim that retirement at 60 is a good idea. The decline in fertility and the increase in life expectancy are destabilizing the financing of pensions, which relies 95% on a distribution system that is struggling. This is not new; when the distribution system was introduced in 1941 and then generalized after the Liberation, there was no debate. This led the authorities to close the door twice to retirement at 60, an old social demand, in 1941 and again in 1945. The 1945 ordinance highlighted that "setting the retirement age too low would place an unbearable burden on the working population." At that time, life expectancy at birth was less than 60 years, whereas today it is over 82 years. Claiming that one could retire at 60 in a country where retirement savings are underdeveloped is an illusion. Pensions are funded by contributions taken from the work of the active population and, beyond that, by wealth creation. Financing long and generous pensions is impossible unless we massively impoverish the active population, which would be morally unacceptable and economically counterproductive. Moreover, despite high retirement contribution levels (28% of gross salaries in the private sector), the purchasing power of retirees will significantly deteriorate in the coming decades. The priority is not to lower the retirement age but to generalize collective capitalization to support the distribution system and preserve the purchasing power of future generations of retirees.

The Council for the Orientation of Pensions (COR) has just released a report estimating that the pay-as-you-go system will be in the red again. Should a new pension reform be implemented? Can we still trust COR reports?

COR reports are strangely reminiscent of the 1930s song by Paul Misraki, "Everything is Fine, Madame the Marquise." They offer a misleading reading of the financial situation by ignoring the total financial slippages related to the pensions of public employees. As in the song popularized by Ray Ventura, it is only at the very end of COR reports, once the soothing rhetoric is over, that we access the interesting information, particularly the significant decline in retirees' purchasing power within the next half-century. The COR refuses to face realities, which prevents making the right diagnoses and fuels dangerous proposals for social protection and purchasing power. The latest study by the Molinari Economic Institute shows that it overlooked 56 billion euros in financial slippages related to the pensions of public employees (civil servants, state workers, SNCF, RATP, etc.). Half of the recurring public deficits since the end of the baby boom are due to pensions.

Can the French pay-as-you-go pension system be saved without introducing a dose of capitalization?

The challenge is to save the purchasing power of future generations of retirees without sacrificing that of the active population and public finances. To support the struggling distribution system, more collective capitalization is needed. If we had been as foresighted as our neighbors, we would have placed the equivalent of 100% of GDP in complementary capitalization. Retirement savings would yield an average of 4% of GDP per year in dividends and capital gains, which would allow better pension revaluation without relying solely on the retirement age as an adjustment variable. The only solution to avoid the impoverishment of retirees is to generalize collective savings. This is what the Pension Insurance Fund for Pharmacists did, where retirement capitalization, initially optional, became mandatory. This decision proved beneficial for the purchasing power of pharmacists, who benefit from pensions financed by both the distribution system and collective capitalization.

Why is capitalization, when it comes to pensions, still a kind of taboo in France?

Over a century ago, Jean Jaurès emphasized that "those who make a monster out of capitalization are making a strange mistake." The founder of L'Humanité and the Socialist Party believed that those who opposed the generalization of collective capitalization were acting against the interests of workers and the working class. Everyone who has access to collective capitalization in France appreciates it. This is the case for the 4.5 million civil servants who contribute to the Public Service Pension Fund (ERAFP). This collective pension fund, co-managed by public service unions (CGT, CFDT, FO, UNSA, FSU, Solidaires, FA-FP, CFE-CGC), had 43 billion euros invested in financial markets at the end of 2023. Since its creation, it has earned 17 billion euros for contributors and retirees, with investments generating an average annual return of 4.2% since 2006. Similar performance is observed in all structures that have implemented collective capitalization (Banque de France, Senate, etc.). Good for employees, capitalization is also good for taxpayers. For example, if the State financed part of its pensions through capitalization, as the Senate does, it would have reduced its deficit by 30% from 2008 to 2022, resulting in an annual savings of 29 billion euros in current terms. If the State had been even more foresighted and fully funded the pensions of its employees like the Banque de France, it would save nearly 60 billion euros annually. And when pensions are fully funded, salaries tend to increase more rapidly. It is no coincidence that in 2020, when the government proposed implementing the universal pension system, all the unions at the Banque de France took to the streets, led by the CGT. 

Is the growing success of subscribing to Retirement Savings Plans (PER) not proof that savers are "ready" to approach the issue of capitalization with confidence?

The growing popularity of individual savings products (individual PERs, collective or mandatory PERs) and pension funds (ERAFP, etc.) is a reality. A recent Ipsos survey for the Circle of Savers shows that 78% of French people believe it is necessary to promote pension funds as a complement to the distribution system. This wealth-creating solution appears preferable to traditional alternatives (raising the legal retirement age beyond 64 or reducing pensions). The real concern is the too slow pace of growth in retirement capitalization. When adding up individual savings plans, company savings plans, and pension funds, the bulk of which is reserved for public employees, retirement savings represent about 20% of GDP. France needs five times more. To catch up, collective capitalization must be generalized, as was done in the public sector 20 years ago. At this stage, no party dares to address this issue, which is crucial for purchasing power.

*Nicolas Marques, Director General of the Molinari Economic Institute in Paris.