“We have to do this reform.” Asked about TF1 at the beginning of December, Emmanuel Macron confirmed his wish for the French to work “longer” by postponing the legal retirement age. “The only lever”, according to him, to deal with the “massive financing needs” that put “the pay-as-you-go system in danger”.
It is not enough to convince the French who are 85% to speak out against any postponement of the legal age, according to the Barometer of the economy carried out by Odoxa and Agipi for challenges and BFM Business. This opposition is explained more by mistrust in the government’s financial argument than by the lack of interest in the pay-as-you-go system.
On the contrary, more than six out of 10 French people (63%) say they are attached to this system, according to a survey carried out in 2021 by the Caisse des dépôts, although only 57% believe they have a good knowledge of how it works.
intergenerational solidarity
The beginnings of pay-as-you-go pensions in France go back to 1941, when the Vichy government, through Minister of Labor René Belin, former leader of the CGT, decided to finance the pensions of retirees through capitalized pension funds. After the war, the principle of the pay-as-you-go pension system was retaken and definitively adopted in France in 1946, within the framework of the creation of Social Security.
The general operation of the system has not changed since then. At present, the basic and complementary pensions constitute the two mandatory pension schemes that continue to operate on a pay-as-you-go basis, according to a principle of intergenerational solidarity between active and retirees and a principle of solidarity based on socio-professional criteria. Hence the existence of various regimes (general, special, independent, etc.).
In other words, this model predicts that it is the old-age insurance contributions paid by active workers that immediately finance the pensions of retirees. This principle implies that demographic evolution plays a central role in financing the system. And this is what could pose a problem in the future, since the ratio of contributors to retirees should continue to evolve unfavorably with 1.2 contributors per retiree in 2070, compared to 1.7 in 2020 and 2.1 at the beginning of the decade. of 2000.
Capitalization, a model abandoned long ago in France
Although the pay-as-you-go system obeys the contributory principle (a retiree’s pension is calculated based on what he has contributed during his working life), this deterioration in the contributor/retiree relationship is one of the main arguments put forward by defenders of the postponement of the age of majority to justify the need to finance the system.
Some liberals consider that raising the legal age will not even be enough to offset future deficits and advocate introducing a dose of capitalization. Unlike the pay-as-you-go regime, the capitalized regime foresees that today’s workers save to finance their retirement. Their contributions are therefore the object of financial or real estate investments whose return depends above all on the evolution of interest rates. In France, the first mandatory pension scheme for employees was created in 1930 according to a capitalization logic. It covered up to 15 million people.
Source: BFM TV
