Pension reform could reduce France’s debt, EU Commission says

The pension reform France has planned could help decrease the general government debt and reduce sustainability risks, the country has been told by the European Commission.

In its country-specific recommendation for France, the commission noted that the debt could be reduced over the medium-term and therefore reduce debt sustainability risks, as “the budgetary equilibrium of the pension system is highly dependent on macroeconomic assumptions”.

The report said that according to the latest annual report by France’s Pensions Advisory Council (Conseil d’orientation des retraites), pension expenditures were at 13.8 per cent of GDP in 2017, and are projected to reach 13.5 per cent in 2022.

After this, the expenditures will remain in a range between 11.6 per cent and 14.4 per cent by 2070, depending on the growth rate assumed for the evolution of GDP and employment over time.

The commission also noted that the employment rate reached 71.3 per cent in 2018 but that the unemployment rate further declined to 9.1 per cent. However, the rate remains above the EU average of 6.8 per cent and the euro area average of 8.2 per cent.

Furthermore, the report said there are plans to draft a law to create uniform rules for different pension schemes by the end of the year.

“France has above 40 different pension schemes which to different groups of workers and functions according to different sets of rules. A draft law is expected by the end of the year to progressively unify the rules of these schemes, with a view to simplifying the functioning of the pension system notably to improve its transparency, fairness and efficiency,” the commission said.

It also noted that sustainability risks for general government debt remain high in the medium-term and that reducing the general government debt ratio would also improve growth prospects and the resilience of the French economy.

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