For more than a quarter of a century, there has not been a French president who has not tried to improve the country’s pension system, and Emmanuel Macron is no exception.

The 45-year-old leader, elected in 2022 for a second five-year term, is trying to reduce the deficit and stimulate the economy by raising the minimum pension age from 62 to 64. The fact that he cannot run again for the presidency of France is, according to many, the main reason why he did not back down and tried to pass pension reform without a vote in the National Assembly, which provoked a reaction of “immoral way of governing”.

In any case, he opposes unions determined to thwart change through strikes and mass protests.

In addition, pension reform has long been a sensitive issue in France. In 1995, weeks of mass protests forced the then government to abandon plans to reform public sector pensions. In 2010, millions took to the streets to oppose raising the retirement age by two years to 62, and in 2014 further reforms were met with massive protests.

Why is Macron not backing down?

But why does Macron want to change the pension system, especially at a time when France’s public pension system is similar to that of other European countries?

The problem here is that the French are spending more time in retirement than most European workers, which creates a financing gap that adds to the national debt. In addition, an aging population exacerbates the problem. Without change, the national pension deficit could widen to 0.8% of annual output over the next decade, according to the country’s Pensions Advisory Council. This is a burden that the government cannot afford in a country that already has a high public debt – one of the highest in Europe.

The minimum retirement age in France, at 62, is currently one of the lowest in Europe. On average, French women spend 26.7 years in retirement and men 22.2 years, compared with 21.4 and 18.4 years in Germany. Raising the minimum age to 64 and extending the minimum contribution period for accessing a full pension aims to close the gap in the system by 2030, the government said.

This will allow the government to invest more in other areas: investing in digital technologies, financing the transition to a low-carbon economy, and stimulating growth and employment. Raising the minimum retirement age could also improve low employment among older workers, as previous pension reviews have done.

As we said above, Macron has nothing to lose politically, since he cannot run for a third term. That’s why he’s determined to cement his legacy as a pro-business reformer and triumph for his centrist movement over the populists on the right and left.

There are other ways, unions say

For their part, the unions say adjusting the age limits will unfairly hit low-skilled workers and less wealthy people who started working earlier. Unions say there are better ways to increase employment for older workers and balance the system, including raising taxes. However, Macron ruled them out.

The government has offered incentives so that some workers can still retire at 62 and has promised to increase the minimum pension for the less well off. However, this was not enough to appease the unions.

Not only a French problem

At the same time, however, the percentages show that pensions are a problem not only for France, but for the whole of Europe and are directly related to demographics.

In particular, according to the World Health Organization, by 2050 the world population aged 60 and over is expected to double, while fertility rates are in a long-term decline. The financial burden is also putting support systems for older people to the test, as many countries face difficult choices: whether to raise the retirement age, cut benefits, or raise taxes.

By 2050, the G-30 consultants estimate that the pension gap will be equivalent to about 23% of world output. In Europe and North America, the ratio of pensioners to workers by 2050 was 30 to 100.

According to Bloomberg, we are on our way to a smaller percentage of people paying taxes and a larger percentage receiving pensions. By 2035, the US base system known as Social Security will no longer be able to cover benefits, which its administrators say will result in a 20% reduction in benefits.

Therefore, analysts believe that the “trap” is that although we live longer and healthier, the retirement age remains more or less stable.

For example, the governing coalition in Berlin has pledged not to raise the retirement age or reduce pensions, and to maintain a commitment to keep pensions at 48% of pre-retirement income. To cover the expected shortfall, he promised to inject 10 billion euros into Germany’s pension insurance system, hoping that capital markets would raise the necessary funds.

If individual employee contributions remain stable, this will mean that more than half of the federal budget will have to be spent on stabilizing the pension system by 2045, according to the German government’s scientific advisory committee.

Political dilemma

On the other hand, pension is not a purely financial issue. It’s also political. Pensions determine the vote of many citizens, which means that the political competition on this issue is largely aimed at avoiding voter discontent, and not at ensuring the long-term sustainability of the pension system.

“It is clear that the pension is facing short-term policy pressures. In addition, the data shows that older people vote more than younger people, so political bias is created,” said Nicholas Barr, professor at the London School of Economics.

However, there are also countries with systems that have “neutralized” this political bias. In Canada, for example, pension legislation is protected by the Constitution, while in Sweden pension reform requires cross-party support.

In addition, governments seeking to raise the retirement age can give people more flexibility about when and how they can retire by providing financial incentives to keep working longer. In Sweden, for example, the “partial pension” system allows workers between the ages of 60 and 64 to reduce working hours and receive a pension equal to half their lost earnings.

Source: Bloomber, Politico, CNN.