Economics

The French Continue To Protest Pension Reforms

Several labor unions across France have taken to the streets to protest the planned pension reforms by President Emmanuel Macron. The protests, which have been going on for weeks now, have led to the closure of some schools. Despite the strikes, the government has vowed to go ahead with the planned overhaul. Transport is the most affected sector by the protests, especially in Paris. Travelers who have been caught up in the mess have expressed their frustration at both the government and protestors. With over 800,000 people taking part in the strike, it is considered one of the biggest demonstrations by trade unions in this decade.

The Pension System In France

The pension system in France is divided into five major categories. The first division is the non-contributory minimum pension introduced in 1956. It targets people aged between 60 and 65 who have not been employed for reasons such as health.

The second division is the mandatory state pension paid by workers and employers to fund the pension of the retirees. The scheme aims to provide up to 50% of the income of retirees during their highest-earning years up to a maximum of 35,000 pounds annually. This pension scheme is financed by mandatory payroll tax known as “social security contribution” at a rate of 15.15% (shared by employer and employee at 8.4% and 6.75% respectively) up to a maximum pay of 37,032 pounds and additional 1.7% for the remainder of the pay.

The third division is the mandatory occupational pension which supplements the state pension and increases retiree’s earning from 50% to 70-80%. The schemes under this division are Arrco, Ircantec, and Agric. The contribution to the occupational pension scheme is shared between the employer (contributes two-thirds) and employee (contributes one-third). Other pension plans are voluntary private individual pension and voluntary private collective pension.

Citizens Happy With The Existing Payment System 

Many French citizens and non-citizens are happy with the existing pension system, viewing it as a guarantee for a better living standard for the retirees. According to Eurostat reports (2018), France had one of the highest income replacement ratios in the EU, at 70% and the lowest rate of seniors being at risk of poverty, at only 8%.

Despite the many benefits, the pension system is considered costly as the government spends close to 14% of the GDP on pension, the highest in Europe. The existing system is also complex and difficult to understand what retirees are entitled to. Workers who do the same job across the country get different pensions.

Government’s New Pension Reforms Cause Panic

President Macron is determined to deliver one of the biggest transformations of the country’s social model and welfare system. The administrations aim to have a unified, point-based pension system by transforming all the 42 different pension programs into a single system. According to the proposed system, workers will earn and accumulate points that will be cashed upon retirement. Workers will also be able to switch jobs without switching retirement programs.

Although the president is not keen on changing the legal retirement age, he wants to define a new age that workers must attain for them to qualify for full pension as well as penalties and incentives for people to work until then or even longer.

However, the workers fear the risk of losing their current benefits afforded to them by various retirement programs. Some workers who are keen on retiring early are not happy with the new proposals. Most workers do not understand the value of points and whether they will lose out because of such points.

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