Pension reform will have a “limited effect” on public finances

The argument has not flourished in the debates on pensions which have been agitating France for several months, although it establishes according to the executive “the need to make this reform”. The balance of the pension system is showing a deficit in the forecasts of the highly respected Council for the Orientation of Pensions (COR), while the problem of public debt is getting dangerously worse due to the sudden rise in interest rates. Rexecode's director of studies, Olivier Redoulès, and the president of the Fipeco association, François Ecalle, looked at the consequences of the pension reform on public finances. The two specialists warn bluntly that “the overall effect of the reform on public spending is limited”.

A number of measures promulgated by the President of the Republic last Friday, starting with the postponement of the legal retirement age to 64, will lead to cuts in expenditure for the pension system. Olivier Redoulès and François Ecalle estimate them at 14 billion euros in 2030 based on the impact study provided by the government. A whole other part of the measures will conversely lead to new expenditure. The cost of the "exemption and support" measures is estimated at 5.9 billion euros in 2030. the total effect on expenditure can be estimated at around 1 billion euros”, notes the study by Rexecode and Fipeco.

In addition to a sharp drop in pension system spending, the Borne government's reform will also lead to an increase in revenue: by working longer, the French will contribute more to the financing of the pension system. After having weighed and weighed all the new parameters provided for by the reform, the two economists count 6 billion euros in additional revenue in 2030. Ultimately, if we take into consideration both the reductions in expenditure (- 7.1 billion euros) and increases in revenue (6 billion euros), the balance is 13.1 billion euros in 2030 under the effect of the pension reform.

Will this positive balance be enough to cancel out the deficits in the pension system? No, unambiguously answer the two public finance specialists. Olivier Redoulès and François Ecalle are freeing themselves from the COR's deficit forecasts, which they believe are based on overly optimistic macroeconomic parameters. “Under a more cautious macroeconomic outlook for 2030, but probably more likely, the pension system deficit would reach 1% of GDP before reform in 2030, the deficit after reform would then be 0.6% of GDP”, they conclude. A post-reform deficit much larger than that of 0.2% of GDP communicated by the authorities.

The consequences of this pension reform go far beyond the accounts of the National Old Age Insurance Fund. The increase in the employment rate, as a result of the postponement of the legal retirement age and the extension of the contribution period, will in particular lead to an increase in GDP of around 1.1 points in 2030 , according to calculations by Rexecode and Fipeco. Another consequence of a better employment rate: an increase in compulsory contributions and therefore in public revenues. A significant jackpot of 18 billion euros excluding pension contributions for the State coffers in 2030. Other provisions provided for by the reform allow more relative gains for public finances, including the harmonization of contribution rates on contractual termination and retirement indemnities, which represents a gain of 300 million euros.

But in the same way as for the pension system, this extension of the career will also represent additional expenditure for public finances beyond the pension system. Expenditure on unemployment insurance will, for example, swell in view of the structural problems of the French labor market in terms of employment of seniors. The same goes for the Family Allowance Fund, for example. Experts agree that these “indirect” social expenditures represent around 20% of the expected gross savings, or 3.6 billion euros in 2030.

The work of Rexecode and Fipeco ultimately reveals to us that the problem of the pension deficit will not be resolved in 2030, as the government had promised. Far from it. "The situation of public finances would remain constrained after the reform", sign the authors of the statistical survey. A quick observation that already projects us into the conditions of the possibility of a new reform.