Retirement at 69 - Germany's lessons from France's fiasco

French President Emmanuel Macron seemed downright aggressive when he asked his compatriots for support for his pension reform in a television interview on Wednesday afternoon. He had previously pushed the controversial measure past Parliament with a brute force maneuver.

The price for this was high. Macron's presidency has been badly battered after the government won a no-confidence vote by just nine votes on Monday. Meanwhile, his popularity has plummeted: according to a survey, two-thirds of French people had hoped for the government to fall before the vote.

The protests across the country show how angry the French are at Macron and the reform. Thousands also took to the streets on Tuesday. Garbage is piling up on the sidewalks in Paris, petrol stations are running out of petrol and there will be another nationwide strike on Thursday.

The martial images of the protests are likely to trigger a reflex in other European politicians: to avoid the unpopular reforms of the pension systems at all costs.

Chancellor Olaf Scholz drew this conclusion long before the French pension fiasco. During the election campaign, the SPD politician categorically ruled out an adjustment to the retirement age.

He should know better though. Despite the current high surpluses, the German pension system is stuck in a demographic trap. The European Commission warns of this, as does the Bundesbank. The central bank and the economy are also calling for the retirement age to be raised to 69 in this country.

The federal government wants nothing to do with such advice. The traffic light coalition could also draw a different conclusion from a look abroad: if a pension reform is tackled properly, far-reaching changes can also be implemented without major disputes. This shows a whole series of successful reforms.

The magic word for successful pension reform is "fairness". Those affected should have the feeling that changes are fair, says Monika Queisser, pensions expert at the OECD, an association of predominantly wealthy industrialized countries. This applies even if the reforms bring individual hardships, such as a later retirement age.

“Structural pension reforms can be implemented well with a lot of preparation. This is especially true when the reform eliminates injustices,” says Queisser. "The French are actually very open to reforms, even major reforms, if the aim is to create justice."

Ironically, Macron took this principle to heart when he first attempted reform. As early as 2019, he made a proposal for restructuring the French pension system. Above all, it should be fairer: there are currently 42 pension funds for different professional groups with different rules.

Railway workers, for example, are sometimes allowed to retire at the age of 52, while other professional groups receive particularly high pensions. Macron wanted to combine the tills and standardize the rules for everyone.

The proposal was well prepared and received a lot of praise in France and internationally. However, it was only gradually becoming apparent that the reform had become more complex than expected. Because of the changeover, wages had to be increased, particularly in the public sector, in order to cushion the consequences of the reform. The plans were therefore withdrawn during the Covid pandemic.

Instead, Macron's government started with a simpler reform that focuses on raising the retirement age. That turned out to be clumsy. "Adjustments to the retirement age, although less far-reaching than structural reforms, usually generate more political resistance," says OECD expert Queisser. "No one is happy when governments raise the retirement age."

Reformers have three levers to make pension systems fit for the future: they can push back the retirement age, increase the pension contribution or reduce payments. Or a combination of everything.

Pensions expert Karl Hinrichs from the University of Bremen has been studying European pension reforms and their implementation for years. "Raising the retirement age is by far the most unpopular variant of pension reforms," ​​he agrees. “People don't want to work until they are 69 or 70 because they think they will be worse off than their older siblings, neighbors or colleagues. This is also because people often underestimate their own life expectancy.”

There would be a clever way to push back the retirement age: by linking it to the constantly increasing life expectancy. "That sounds fairer to those affected than a number like 69 or 70," says Hinrichs. "In addition, politicians only have to implement such a change once, after which the adjustments take place automatically."

Portugal, Spain, Italy and Denmark have already chosen to increase the retirement age with average life expectancy. The Italian pension is therefore more sustainably financed than the French one.

The German pension system also takes life expectancy into account – albeit only to a limited extent and indirectly via the ratio of insured persons to contributions. The complicated formula for this, which takes into account all kinds of interest groups, fills an entire DIN A4 page.

According to Queisser, the decisive factor in ensuring that such reforms can be implemented is that the measures are negotiated in advance with all interest groups and the pension insurance system itself. "Consensus is necessary for structural reforms and it takes time to create one." That works in countries with good, resilient social partnerships. The Swedish pension reform, for example, was discussed with all parties for years and then implemented in the late 1990s.

Experience shows that commissions also play a key role in pushing through pension reforms. To do this, however, they must be used skillfully. Such bodies can make less ideological proposals than politicians. And when commissions present recommendations, they are already a consensus between parties and unions.

The red-green government under Chancellor Gerhard Schröder has shown how this can be done. The Hartz and Rürup commissions had a lot of influence at the time. The latter, for example, proposed raising the retirement age to 67. In Sweden and Norway, too, commissions were instrumental in pushing through fundamental pension reforms.

However, the reforms should not stop at pension insurance alone. "In order for voters to accept a higher retirement age, something has to change in the world of work," says Hinrichs. "Those affected must also be able to work longer." If jobs become more age-appropriate and companies train employees, the discussion about a higher retirement age will no longer deter people.

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