Author: Didier Blanchet
Financial projections recently conducted by the French Pension Council (i.e. Conseil d’orientation des retraites) show large deficits in the medium run which should attract the attention of policy-makers. But what about the long run projections?
This IPP Briefing Note discusses these recent projections and stresses a number of implications. The various macro-economic scenarios lead to a wide variety of outcomes concerning the financial equilibrium of the pension system. The median scenario of these projections show a stabilisation of pension spending as a share of GDP in 2050-60 but this result is highly dependent on the growth rate of the economy. Would growth be higher than expected, public pensions would shrink as a share of GDP. On the other hand would growth be lower than expected, then the current system would imply an increasing share of pensions in the national income. This mechanism is the result of the type of pension reforms implemented in France since the mid-1990s: by indexing both pensions and reference wages on inflation, pension liabilities are only reduced if growth is significant. Reforming the French pension system to make its financial equilibrium less dependent on growth could another objective – in addition of reducing its complexity – of a possible structural reform.