If you were a president who is two years away from a general election, would you announce to the electorate that they need to keep working for longer?
France’s President Sarkozy has no choice. The country’s pay as you go state pension system is proving to be too expensive. With only 1.5 workers to support each pensioner (compared to 4 workers per pensioner 40 years ago), France simply cannot afford to have its workers retire at the current pensionable age of 60. Older people in France currently draw their pension for many years – 28 for women and 24 for men, thanks to the high life expectancy.
What can President Sarkozy do about this? He has a number of options open to him. Firstly, there is the question of raising the retirement age. Such a move is bound to provoke outbursts of dissent. There have already been vocal protests from the unions at this proposal. A long, financially secure retirement is deeply engrained in the French mentality, and waking up to the reality that this way of life is over will be an unpleasant national experience.
Other options include raising contributions or increasing the number of years for which a citizen must pay into the scheme. However, these are unlikely to be paths that he chooses because the tax burden on French residents is already high.
Whilst any plans to reform pensions have been unpopular in the past few months, is there any sign that France is coming around to the idea that something has to be done to prevent it from becoming another Greece? Rating agencies have indicated that its AAA rating could be under threat if the government does not exhibit any willingness to cut its liabilities, one of which is its state pension.
The unions are certainly unwilling to budge on the issue, but the prospect of being viewed as an economic basket case like Spain or Greece strikes fear into the heart of the nation’s honour.
Even if they are reluctant to see their state pension ages get any higher, private sector workers will at least welcome a review of the gold plated pensions that employees in the public sector enjoy. There is a growing resentment that the public sector workers get a better deal than they deserve, which may sound familiar to observers of the United Kingdom’s pension set up.
If President Sarkozy manages to impose pension reform in the coming months, he has a chance to shore up his country’s finances. The question is, will his people thank or punish him for it in 2012?
