Insurance and pensions

Economic survey of France 2007: Coping with demographic ageing

 

Contents | Executive Summary | How to obtain this publication | Additional information

The following OECD assessment and recommendations summarise Chapter 4 of the Economic survey of France published on 27 June 2007.

Contents                                                                                                                           

The additional government spending that France will have to finance between now and 2050 because of increased pensions, health and dependency care related to population ageing is estimated by the authorities at more than four percentage points of GDP, and that is under relatively optimistic assumptions. After the progress made in the 2003 pension overhaul, it is now essential to increase employment among older workers and to continue these cost cutting efforts in 2008 by preserving the rule that the contribution period should be indexed to life expectancy as foreseen in the 2003 law. This solution, and/or a cut in the replacement rate, is preferable to increasing contributions; taxes and social contributions are already too high, damaging output and employment. Fairness and, to a lesser extent, public finance concerns dictate an immediate start to the process of gradually eliminating the privileges of the “special” regimes covering employees of current or former public enterprises, which have so far been spared reform.


The low employment rate of people over 55 is also partly the result of public misunderstanding of labour market behaviour. Two decades of policies have encouraged workers to retire early in the unfounded belief that this might boost youth employment; employers also adopted this way of thinking. Such policies are being dismantled, yet many related provisions are still in place such as that people over 57 receiving unemployment benefit are under no obligation to search for work. Attitudes towards issues like these are difficult to change: during the 2007 social security budget preparations, talks aimed at scrapping tax exemption on compensation paid by employers when workers over 60 are forced to retire (which most often were in fact voluntary retirements deliberately disguised as compulsory) did not succeed, and the exemption was de facto extended temporarily to all lump sum payments due at the moment of retirement. Incentives to retire early should be repealed: the waiver of job search requirements and tax exemptions on bonuses paid at the moment of retirement ought to be discontinued. Apart from the problem of incentives, the difficulty of employing older workers may theoretically stem from a divergence between their productivity and their wages, although this has not been shown empirically. Furthermore, enterprises are probably tempted to buy social peace by laying off older workers in difficult times. Lifelong learning is one way to improve employment prospects for older people, though insufficient on its own. Some measures taken, , notably under the National Action Plan for Employment of Older People, such as the announced elimination of the additional tax on businesses that lay off workers over 50, the increase in the surcote, which gives higher pensions to those who contribute for more than the normal number of years, the implementation of individual training rights, and a wide ranging information campaign to change people’s mentalities, have gone in the right direction, though the effects of the new CDD senior are as yet uncertain. However, it should also be ensured that wages of older workers reflect their productivity.


The health care and dependency related costs of population ageing are more uncertain than those of retirement pensions because they depend on technological progress, price trends for services and treatment, and the share of expenses paid by families. Moreover, it can be difficult to distinguish between health care and dependency spending, while local government assessments of individuals’ degree of dependence seem to be subject to inconsistencies. For these reasons, it is important to provide public information on the current level and projected trends in spending, and on the content of existing policies, their funding and how responsibilities are shared. Such information would provide the basis for deciding, jointly and explicitly, the magnitude of the costs to be borne by families, and thus for encouraging people to set aside the necessary savings.

 

How to obtain this publication                                                                                      

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations. The complete edition of the Economic survey of France 2007 is available from:

Additional information                                                                                                  

 

For further information please contact the France Desk at the OECD Economics Department at eco.survey@oecd.org.  The OECD Secretariat's report was prepared by Paul O'Brien and Stéphanie Jamet under the supervision of Peter Jarrett.

 

 

 

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