NCPA - National Center for Policy Analysis

Pension Reform in France

May 28, 2003

As Congress prepares to take up Medicare reform, there are some important current lessons to be learned from the French.

Prime Minister Jean-Pierre Raffarin is taking on the issue of pension reform for government workers. At issue in France is the generous state-funded pension scheme put in place at the height of the postwar baby boom. Today the French population is declining, a demographic reality that spells "doom" without reform, as Raffarin puts it. The same reality beckons for all of Europe's welfare states, and America's too unless we reform Medicare and Social Security, say observers.

It's simple math. The number of working people contributing to the "pay-as-you-go" pension system is falling, and the number of graying beneficiaries rising.

  • Four workers financed each pensioner in 1960 and two in 2000.
  • By 2020 the ratio will be one-to-one.
  • Raffarin has told the French that "If we do nothing today, in less than 20 years our pensions will be reduced by half."

His proposals aren't so much revolutionary as barely enough to get by, say critics.

  • Raffarin wants state-sector employees to work an extra 2.5 years -- up to 40 years -- to qualify for a full pension, a move that would bring them in line with the private sector.
  • Other ideas would give workers financial incentives to stay on the job longer, and disincentives for retiring early.
  • The average French worker now retires at 58.7 years old, earlier than workers in any of the other big European Union countries.

Still, it's notable that even socialist France is recognizing that its government pension system is headed for a crash without reform. The lesson for the United States is to tackle reform before we get into such dire straits.

Source: Editorial, "Springtime in Paris," Wall Street Journal, May 28, 2003.

For text (WSJ subscription required)

http://online.wsj.com/article/0,,SB105408152330652700,00.html

 

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