Government unveils pension reform amid union discontent

The French government unveiled Wednesday a proposed reform of the state pension system, which will raise the minimum retirement age to 62 and introduce higher taxes for the rich in an attempt to tackle the country's burgeoning public deficit.


REUTERS - The French will have to work two years longer before retiring and the rich will pay higher taxes in an effort to drag France’s pensions budget out of the red, the government said on Wednesday in a long-awaited reform.

Under the plan, which is likely to meet stiff trade union resistance, the minimum retirement age will be lifted gradually to 62 in 2018 from 60 at present, Labour Minister Eric Woerth told reporters.

“Working longer is inevitable,” Woerth said. “All our European partners have done this by working longer. We cannot avoid joining this movement.”

President Nicolas Sarkozy hopes the reform will convince jittery investors that he is serious about cleaning up heavily indebted state finances and enable France to cling onto its precious AAA sovereign debt rating.

Even with the change, France will still have one of the earliest legal retirement ages in the developed world. Germany plans to raise its retirement age to 67, while Britain and Italy are standardising at 65.

The state pay-as-you-go pension system is forecast to register a 32-billion-euro ($39 billion) deficit in 2010.

On current trends this is set to rise above 100 billion euros a year by 2050, with an ageing population living ever longer, but Woerth said his proposals meant pensions accounts would be balanced by 2018.

Among other measures, Woerth said people would have to work at least 41.5 years by 2020 to be entitled to a full pension at 62, against 40.5 years now.

He also announced a wave of tax increases on capital gains and investment income, and said the government would impose a one percent surcharge on the top income tax bracket, raising 3.7 billion euros in extra revenue in 2018.

“Those who have more resources than others should contribute more than others to the financing of pensions,” Woerth said.

Most attention is likely to be fixed on the decision to raise the minimum retirement age, which was lowered to 60 by former Socialist President Francois Mitterrand in 1983.

Trades unions have threatened to battle any increase, warning of mass protests in September when the reform is scheduled to go to parliament for ratification.

In an attempt to forestall union anger, Woerth said those who began work before 18 will continue to retire at 60. People with especially arduous jobs would also be allowed to leave the workplace early.

Daily newsletterReceive essential international news every morning