French Reform

A] Prelude

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B] The Issue

François Hollande unveils several measures to fundamentally reform the French pension system. The former president proposes:

a legal retirement age of 63 in 2028;
a gradual increase in the contribution period;
a five-year cap on pension increases.

In his new manifesto François Hollande argues that the pension reform issue will inevitably resurface after the 2027 presidential election. His first proposal is to set the legal retirement age at 63, effective January 1, 2028. This position diverges from the desire of some within the Socialist Party to return to 62. The former head of state then proposes adjusting the contribution period based on life expectancy.

Rather than regularly changing the legal retirement age, he advocates a gradual adjustment mechanism managed by social partners. This proposal comes after François Hollande opposed the increase to 64 years of age implemented under Emmanuel Macron ‘s presidency.

C] Pension Indexation: 1% per year during five years

François Hollande is proposing another potentially sensitive measure for retirees: limiting pension indexation to 1% per year for five years. According to him, the savings generated would be comparable to those obtained by postponing the legal retirement age by one year. However, such a measure would lead to a loss of real purchasing power for retirees if inflation were to persistently exceed this level.

D] New Funding Aspect

The former president also wants to introduce a funded component into pension financing. This component would be controlled by social partners and would supplement the French system, which is primarily based on a pay-as-you-go model.

This would represent a significant shift for someone from the social-democratic left. At the same time, François Hollande is presenting a broader plan for financing social protection. He proposes reducing employee contributions to bring net pay closer to gross pay. To compensate for this decrease in revenue, he is considering a levy on a portion of the largest inheritances.

(By the way interesting to see how tax and inheritances seems to be a trendy topic in Europe as it is also a hot item in The UK and its IHT tax law.)

E] Finally

The other lever would be a major overhaul of the VAT system. François Hollande proposes gradually raising its standard rate from 20% to 24%. A rather typical proposal for a socialist and which is especially costly for persons with modest income. In return however, the current rate of 5,5% on certain products would be reduced to 0% for essential goods, particularly food, as well as for energy and fuels.

This structure reflects the former president’s desire to shift some of the social welfare funding burden from labor to consumption and wealth. In this area, François Hollande champions the “supply-side policy” implemented during his five-year term. As a member of parliament, François Hollande is simultaneously maintaining suspense regarding his political future. He plans to announce in December whether or not he will be a candidate in the 2027 presdential election.

His proposals on pensions, wages, and taxation now provide the first concrete outlines of the program he could champion should he return to the race for the Élysée Palace.

F] Encore: EIOPA’s Policy

As EPH we are always interested to see what the EU’s regulatory pension and insurance authority called EIOPA has to say about an issue and what their policy is.

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(Sources: entrevue/EPH)