[Lionel Laurent] Macron battles against boomers, pensions

Emmanuel Macron is the first French president in a decade who isn’t a baby boomer, and it shows.

The 41-year-old’s battle to reform France’s high-tax, high-spend economy is often fought in the name of generational equality -- largely by tilting the balance away from the elderly in favor of the young. Last year, as a gesture to help young people coming to the job market, the Macron administration hiked social welfare taxes on retirees, an unpopular move that was later reversed in the face of massive street protests by the “yellow vests” movement.

Now Macron is taking aim at pensioners once more, this time proposing to scrap the country’s Byzantine retirement plans (of which there are 42) in favor of a universal points-based system that would ideally be more transparent and egalitarian for future generations. He has pitched it as a “21st century” plan for a changing society, one in which self-employed and part-time work (which both present a natural pension disadvantage) already make up over a third of jobs.

The reaction from labor unions has been uncompromising, unleashing the kind of crippling strikes not seen in years. The 21st century doesn’t seem that much fun to those blocking public transport: Leveling the playing field would mean ending generous schemes like those allowing railway and subway workers to retire at 56 or 57 on a pension that’s propped up by taxpayer funds. Tuesday’s planned strike action will be a big test of whether unions can keep up the pressure: After a first protest drew 800,000 people, according to government figures, last week’s participation dropped to 339,000.

Macron’s youthful arrogance isn’t helping put out the fire. The government’s dismissive attitude to unions and its inability to explain the reform in detail have boosted public support for the strikers. The shambles got worse Monday when Jean-Paul Delevoye, the government’s 72-year-old point man for the reform, resigned after not disclosing 13 interests and side jobs. Hardly an ideal advertisement for a “we’re-all-in-it-together” society.

Still, it’s somewhat depressing that the coalition of forces currently paralyzing France in the name of pension security seem unwilling to acknowledge hard truths that have little to do with the current occupant of the Elysee Palace.

There is a stark demographic divide opening up between the baby boomers retiring from the job market and their juniors who are still at the grind. The French currently retire around four years earlier than the Organization for Economic Cooperation and Development average of 65, on pensions with above-average income replacement rates -- funded by the contributions of those still working. Today, French baby boomers are well-off: The over-65s account for 60 percent of all wealth and around 75 percent of them own their own home (for the under-40s, it’s 49 percent). A 2018 study found pensioners had a higher standard of living than the national average.

The millennial generation won’t be so lucky. France today counts about 71 people who are over 65 years old for every 100 who are under 20. By 2050, official French statistics project the ratio will have flipped to 122 over-65s for every 100 under-20s. OECD estimates suggest that while right now there are almost three workers financing one pensioner, by 2050 there will be fewer than two. The grim truth is that tomorrow’s pensions will be less generous, and will require people to work longer, especially if state pension spending is to stay at around 14 percent of gross domestic product. France isn’t alone -- this is a Europe-wide phenomenon -- but it’s clearly a future drag on finances.

Macron’s reform, while hardly a decisive fix, was supposed to at least in part address this by nudging people into working longer by ironing out loopholes and making the pension system much more transparent. It was explicitly intended to be a softer approach than simply jacking up the retirement age and leaving bigger changes for later. This approach has clearly backfired: The nudge feels like a shove to the French, who now associate Macron with lower pensions, a higher retirement age by stealth and even a privatized system through the back door. Macron’s Jupiterian style hasn’t helped his cause, but it’s ironic that a reform that sought to avoid inflicting tough medicine on the French is being seen as just that.

As the conflict drags on, it’s likely that a reform meant to prove the French could handle a Copernican revolution in pensions will prove the opposite. There will be concessions, delays and fudges. Those 42 shades of gray will survive a while longer, and the Macron administration will likely come out of this weakened. But the fight over what a 21st-century pension should look like isn’t going away, and Macron deserves credit for trying. Even if the striking workers win this time, it will only be a Pyrrhic victory.


Lionel Laurent
Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. -- Ed.

(Bloomberg)