What France can teach the UK about Pensions


If you read some of the UK
headlines, it seems that France is having difficulty adjusting to the
reality of longer lifespans. Its previous retirement age (the age
when you can get a state pension) was 62, which is well below most
other countries. Macron has made that 64, in a reform imposed
on parliament
. 64 is still relatively low, yet there
have been strikes and demonstrations against this change that have
been large even by French standards. A rolling strike by bin
collectors in Paris has left rubbish on the streets.
are asking
whether these protests will bring about the
end of the current constitutional order in France.

At a macro level, it
makes sense to raise the pension age alongside life expectancy. In
most European countries, including France and the UK, state pension
schemes are unfunded, which means that today’s pensions are paid
for by those working today. If people live longer you either need to
reduce the value of the state pension, raise those contributions, or
raise the retirement age. Yet while the life expectancy of those
reaching 65 increased substantially in the decades before 2010,
increases have been more modest since then. The OECD
below is for women in the G7 countries. Note that
UK life expectancy has always been low compared to all other G7
countries except the US.

The French pension
age was raised to 62 from 60 in 2010, and by 2019 (before Covid) life
expectancy at 65 had risen
around half a yea
r since 2010. So the case for
raising the retirement age in France from 62 to 64 is not obviously
because of increases in life expectancy since 2010. Indeed
projections suggest that the French pension system, while it will go
into deficit at the end of this decade, will
even again by 2035
without any increase in pension

So how does France
afford to have a relatively low retirement age compared to other
countries? It is not because state pension levels are low. France
spends around 12% of GDP on state pensions, which is significantly
than the OECD average, which itself is above
the UK. The answer therefore has to be higher levels of
contributions, either directly or indirectly through a tax subsidy. I
noted in a
recent post
that although France had higher levels of
productivity than the UK, mean household incomes were not higher, and
a major reason for this is that French workers retired earlier.
Higher French productivity was paying for a lower retirement age than
the UK and elsewhere, rather than higher post-tax incomes.

France has not
always been an outlier in terms of having a low retirement age. It
was the socialist President François Mitterrand who in 1981 cut the
retirement age from 65 to 60. Has France got this trade-off between
income and retirement right, as Simon Kuper suggests,
and most other countries have it wrong? The strength of popular
feeling against Macron’s higher retirement age
suggest French people think so, although it is impossible to know how
much of this is seeing a benefit (retiring early) without seeing the
cost of that benefit (lower post-tax incomes while working).

The first lesson
that France has to teach the UK (and perhaps other countries) is to
have that debate. One of the consequences of having a predominantly
right wing press and a predominantly right wing government is that
early retirement in the UK is seen
as a problem
, rather than an achievement. Debates over
pensions in the UK too often treat contribution rates as given,
rather than part of a trade-off between the retirement age and
contribution levels. As I have noted before, the UK debate typically
fails to place things into an intertemporal context, and instead
talks about workers versus pensioners as if workers will never

The second lesson
that France has to teach the UK is whether it makes sense to have a
national retirement age at all. Once we move from the aggregate to
thinking about individuals, the unfairness of a uniform retirement
age becomes obvious. If the retirement age was 64, someone who starts
work from the age of 18 will work (and therefore contribute) for 46
years before retiring. Someone who has a degree will, if they retire
at 64, work three years less but still get a state pension. It would
seem to be fairer at an individual level to do away with a retirement
age, and instead be allowed a full state pension after working a
certain number of years. (The option to retire before that number of
years should always be available, but with a less than full pension.)

This unfairness is
recognised in France, but not in the UK. France has had a
‘long careers’ provision where those who started working at an
early age can retire on a full pension before the official retirement
age. That system is
as part of raising the retirement age to
64, so people who have worked for 43 years can retire with a state
pension before 64. Thomas Piketty argues
that If you have 43 years of service, then you should be able to take
your full pension, full stop. [1]

However this idea of
replacing a retirement age by a years worked criteria emphasises a
different potential unfairness problem, because state pensions are
annuities that you receive for as long as you live. If everyone had
the same life expectancy, then those who started work early and
therefore retired early would receive a pension for longer than those
who retired later. How much is this an issue? Just as when you start
work varies by (or perhaps even defines) class, so life expectancy
also varies by class.

It would be easy to
argue that this potential unfairness, created by replacing a fixed
retirement age by years of service criteria, doesn’t arise in
practice because of an ‘unhappy coincidence’ that the life
expectancy of those who start work earlier is shorter by the same
number of years than those who work later. The evidence we have from
France for those benefiting from ‘long careers’ and therefore
early retirement in France is
complex, but does not suggest
such an unhappy
coincidence exists. However, even if there was no difference in life
expectancy between those who start work at 18 and those who start
work at 21, say, that is not an argument for a common retirement age,
because that is obviously unfair to those who start work at 18 and
therefore contribute more to their pension with no additional
benefit. [2]

If those who started
work at 18 can retire on a full pension at 61 through the long career
route, why does France have a retirement age at all and why is it
being raised? The answer lies in the detail, and in
particular the allowances
for taking time off to look
after children. In this respect the UK system, which gives credit for
those receiving child benefit, is more generous than the system in
France, although of course it is easier to be generous when the level
of the state pension is so much lower. It might seem odd that these
details have provoked so much anger, but as Piketty points out if
they didn’t affect a lot of people by a considerable amount Macron
wouldn’t be using so much political capital on insisting on raising the
retirement age to 64.

The controversy in
France over pensions has rather little to do with affordability, and
instead is about lifetime choice and fairness across class. France
was unusual compared to most countries because workers paid more to
fund and enjoy a longer retirement, particularly for the working
class who started work at 18 and particularly working class women.
The danger in ending this is it will create one more weapon for the
populist right.

[1] Why does France
recognise the unfairness to those who start work early created by a
fixed retirement age, while the UK does not? Indeed, why does raising
the retirement age in the UK cause so little controversy compared to
France. The obvious reason is class, and in particular the lack
of political power
in the UK for those who didn’t do
a degree. Raising the retirement age from 62 to 64 in France
primarily affects the working class, because those who did a degree
and started work in their early twenties will need and often want to
work beyond the age of 64 to get their full pension. It is the trade
union movement in France that is leading the protests against raising
the retirement age.

[2] One way of
dealing with different life expectancies across occupations has been
by Ian Mulheirn. He suggests treating the pension as a lump sum that
would have to be invested in an annuity, and the annuity provider
would adjust for different group life expectancies. My own view is
that a government run scheme would be preferable, because private
annuities expose pension holders to interest rate risk.

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