What France’s First-Round Election Results Mean for Pension Reform

Emmanuel Macron and Marine Le Pen emerged as the two top performers of the first round of the French presidential election this past Sunday. Macron led the race with 27.8% of the vote while Le Pen had 23.1% of the vote. The two will face each other again in a runoff on April 24^th to decide the final outcome of the election.

Pension reform has become one of the biggest issues in the race for French voters. Macron and Le Pen are known for their competing stances on the issue. While the current national retirement age in France is 62 years old, Macron initially wanted to raise it to 65. Le Pen, on the other hand, has proposed lowering the age to 60 for those who start working before the age of 20 and keeping it at 62 for all other workers.

Both agree that payments to retirees should be increased, with Macron proposing a $1,190 (€1,100) minimum and Le Pen proposing a $1,082 (€1,000) minimum.

Macron’s position on increasing the retirement age has prompted much political backlash. In December 2019, Macron’s failed attempt at pension reform led to the longest strike in modern French history.

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France has a pay-as-you go pension system, which operates by directly using money from younger workers to pay retirees without investing it. This is in contrast to American public pensions or 401(k) programs, which generally invest the money paid in by workers for decades. With retirement benefits accounting for 13.8% of GDP, France spends more on its pensions than all other OECD countries aside from Greece and Italy.

Macron has long worried about the financial health of the pension system, according to Hervé Boulhol, a senior economist at the OECD.

“The problem is that he fears with new generations coming into retirement, the system will become financially unsustainable,” says Boulhol.

Yesterday, however, Macron hinted that he would be willing to compromise, even suggesting he would change the target retirement age to 64 from 65.

“I am ready to change the timeline and say we don’t necessarily have to do the reform by 2030 if I feel that people are too worried about it,” Macron told multiple journalists who followed him in Northern France.

Le Pen reacted to Macron’s statement yesterday, suggesting that it was just a ploy to win more votes.

“The French are very smart. Everyone knows this is a ploy by Emmanuel Macron to try to win over—or at least mollify—left-wing voters,”, said Le Pen on France Inter radio. “The reality is retirement at 65 is his obsession. It’s all he has ever talked about.”

As the candidates continue to spar over retirement age, neither appear to be considering the OECD’s recommendation, according to Boulhol.

“Whatever age you choose, it makes sense to at least peg the age to average life expectancy,” says Boulhol.

France’s Chief Pension Reform Official Resigns Amid Protests

The CIO Who Left a $1.9 Million Job
at CDPQ to Help Run France

Tags: Election, Emmanuel Macron, France, France election, Hervé Boulhol, life expectancy, Marine Le Pen, OECD, pay-as-you-go, Pension, Pension Reform, Public Pension, Retirement Age

The Vermont Senate voted unanimously in favor of a public pension and post-employment benefits bill that looks to address a $3 billion shortfall in the state’s public employee retirement fund.

The bill proposes various amendments to pension benefits and other post-employment benefits for participants in the Vermont State Employees’ Retirement System and the Vermont State Teachers’ Retirement System. It also changes reporting dates for certain actuarial studies for VSERS and VSTRS, as well as for the Vermont Municipal Employees’ Retirement System.

The proposed legislation calls for one-time payments from the state totaling $200 million to pay down the unfunded liability in the state pension systems. It would also require phased-in increases in contributions from state employees and teachers, as well as some reductions in pension benefits. It makes no changes to the benefits of current retirees and beneficiaries, but modifies the formula for calculating cost-of-living-adjustments.

According to earlier versions of the bill, the actuarially determined employer contribution for the Vermont State Employees’ Retirement System has increased by an annual rate of 12.1% between fiscal year 2009 and fiscal year 2023, and the funded ratio of the VSERS has plummeted to 67.6% as of the end of fiscal year 2021 from 94.1% in fiscal year 2008. Meanwhile, contributions for the Vermont State Teachers’ Retirement System have risen by an annual growth rate of 13% between fiscal year 2009 and fiscal year 2023, as its funded ratio has tumbled to 52.9% as of the end of fiscal year 2021, from 80.9% at the end of fiscal year 2008.

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The accrued liabilities of both VSERS and VSTRS have grown faster than each plans’ assets have since fiscal year 2009, which has led to a gap between the expected payout of future benefits and the assets VSERS and VSTRS have to pay for those benefits.

“I think this is the right path forward and strikes a balance between taking steps to prevent a crisis and acknowledging how difficult this discussion is and how thoughtful our work must be,” Vermont Senate President Pro Tempore Becca Balint said in a statement. “I will help make sure that the Senate is doing its part to support this sensible approach.” [Source]

Last year, a proposed plan to reform Vermont’s public retirement systems was shelved after it received strong backlash from teachers and state employees who said it would force them to work longer, contribute more, and earn less for retirement. Under the proposed plan, teachers and state employees would have been required to pay more in contributions, stay in employment longer, and earn less in monthly benefits when they retire. The plan also reduced cost-of-living-adjustments, and employees would have had to work a minimum of 10 years instead of five to become vested in the program.