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Interview with Eric Woerth

By: Eric Woerth

Publish Date: June  01,  2010


In the wake of a financial and economic crisis that ravaged individual savings and public finances around the globe, pension reform is reappearing on domestic political agendas. French President Nicolas Sarkozy's recent announcement of ambitious plans to reform France's pension system in 2010 is a case in point. AARP interviewed Eric Woerth, French Minister for Labor, Solidarity and Civil Service for an in-depth perspective on the proposed initiative, the political dynamics surrounding it, and the obstacles it may face.

AARP: Mr. Woerth, France has gone through several rounds of pension reform since the early 1990s. What is the state of France's public pension system today, and to what extent is the current economic crisis a factor in the decision to undertake further reform?

EW: The French public pension system has faced a severe increase in the deficit due to lower contributions in 2008 and 2009. The current technical deficit amounts to 30 billion euros, a level we expected, before the economic crisis, to have in 20 years. The crisis requires that we act sooner, but the real problem which we have to face in the long term is of demographic nature.

The French people must be aware of the demographic challenges we face and the impact they will have on our pension system if we do not engage in serious reforms.

AARP: President Sarkozy has publicly ruled out cutting retirement benefits, and an increase in payroll taxes appears unlikely given France's already high tax burden. The obvious solution would be to raise the official retirement age which, at 60, is exceptionally low compared with other EU member states. What are the key components of the proposed reform?

EW: The reform will seek to extend working lives through several means of leverage. Changing the legal retirement age, prolonging the pension contribution period, and further labor market action to create better inclusion of older people, are some of the means that could be used. However, so far no decisions have been made on specific measures.

AARP: Pension reform will require extensive negotiation with the social partners, some of which-the unions in particular-are staunchly opposed to the proposed measures. How will the government navigate these dynamics and where do the key differences lie?

EW: A thorough consultation of social partners is taking place, but ultimately it is the government's responsibility. There is a large sense in the country of the necessity to act. The impact of demography on our pension system, on its sustainability, is recognized, and the people want to keep their "repartition" system, which entails a principle of solidarity between generations, for their elders and for their children in the future.

AARP: Public opinion polls suggest that the majority of the French view retirement at 60 as an acquis social-an epitome of social progress not to be revisited. Mass protests in the aftermath of the president's announcement have given a taste of what is to come. How does the government respond to these voices? What efforts will be made to win over the French people?

EW: We are not seeking confrontation, and extensive consultations with the social partners, political parties and the public are taking place. There is a genuine national debate about this issue which the French people expect and deserve.

We need to explain the situation. The French people must be aware of the demographic challenges we face and the impact they will have on our pension system if we do not engage in serious reforms. They understand that action is needed now. That is why we need to consult thoroughly and then explain what we intend to do and how we are going to do it.

AARP: At 38.2 percent, France has one of the European Union's lowest employment rates in the 55-64 age bracket, and the average French worker retires at just over 59 years of age. Increases in the official retirement age and mandatory contribution periods are important structural measures, but keeping older workers in the workplace requires a profound shift in attitudes all around.  What else is France doing to keep workers in the workplace longer?

EW: We have taken several measures in that regard. First, the government has required companies with more than 50 employees to negotiate plans for the employment of older workers with their workforce. Non-compliers will be fined (1 percent of the payroll). So far, 28,000 plans at the company level and 80 agreements at the branch level have been adopted. Second, the possibility of retiring before the legal age of 60 has, to a large extent, been eliminated (the so-called "pré-retraites"). Third, it is possible to retire later than the legal age. There are financial incentives to do so through a bonus in the calculation of the level of the pension. Finally, the government has developed schemes that allow people to maintain some form of remunerated activity in retirement.

More generally, we are also looking to promote better conditions for older workers in the workplace and to better organize working time. We will also be looking at tuition models.