Emerging from the pension crisis

by
Thomas Piketty
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February 2023 may go down in history as the month when India became more populous than China, whose population is expected to be around 700 million by 2100 according to the United Nations, close to Europe. We could also focus on the earthquake that has just hit Turkey and Syria, in a region devastated by wars and oil interests, or on the consequences of global warming in Pakistan or the Sahel, or on the glaring inadequacies of sanctions against Russian oligarchs and support for Ukraine. Instead, what are we talking about in France? A profoundly unfair pension reform that is out of touch with reality, when we could do so much better to prepare for the future, such as debating an ambitious energy renovation plan, an investment programme in training and research that is finally up to scratch, and so on.

In order to face up to major challenges such as ageing, it is certainly inevitable that everyone should be asked to contribute. But it must be done fairly. There is only one way of trying to convince public opinion of the justice of a reform: it must be demonstrated that the effort required represents a higher proportion of income and wealth for the richest than for the poorest. If you reject any principle of this nature, then not only are you turning your back on more than a century of debate and political practice aimed at constructing collective standards of tax justice, but above all you are placing yourself in an extremely fragile situation in terms of defining what your own standard of justice is.

From this point of view, the documents presented by the government to defend its project are particularly poor. All we know is that the increase in the age and duration of contributions will bring in 17.7 billion euros per year by 2030, without any breakdown by income level or by social class or profession. And with good reason: if the government were to present these figures, it would immediately become apparent that the richest are being asked to contribute at a much lower rate than the middle classes and the poorest. The reason is simple. Raising the statutory retirement age to 64 has by definition no impact on the most highly educated and senior managers: if you started working at 22 or 23, you already have to contribute 42 years (soon to be 43) and therefore have to wait until 64 or 65 to get a full pension. The acceleration of the transition to 43 years of contributions will certainly affect part of this group (only the over-50s), but much less than workers and employees who started working at 19 or 20: the latter will also bear the brunt of the postponement of the legal age and will need to have 44 years of contributions for a full pension (and sometimes 45 or more, whatever the government says), even though they are the ones who have the lowest life expectancy and finance the retirement of executives.

How to get out of this crisis? Three principles are essential: universality, progressiveness and justice. The government no longer has a choice: it must rebuild the system on the basis of the same number of years of service for all. If it chooses 43 years of pensionable service, then this must apply to everyone, without exception. But beware: if the government is sincere in its approach, then by definition the legal age of 64 is no longer relevant. If you have 43 years of service, then you can take your full pension, full stop. The problem is that the government spends its time confusing the debate by pretending that it is going to improve the long career system, while introducing clauses so complex on the dates of validated quarters at 19 or 20 that they do not apply to anyone. The most enormous manipulation is the following. As a general rule, the annuities include two years per child (one of which can be attributed to fathers for children born since 2010), as well as an additional year in case of parental leave. However, these years for children are only very partially taken into account in the complex rules linked to the long career system. This is why the government is so keen to maintain the legal age barrier at 64: this is what allows it to demand de facto 44 or 45 years of service (or more) from working-class women who started working early, while women in senior management will be entitled to 43 years of service without difficulty. This game must stop: if the 43-year rule is announced, then it must be applied to everyone equally, without exception, i.e. by eliminating the 64 years. Some people on the left or the right prefer 42 or 41 years of service. The debate is legitimate, but in any case the rule must apply to all.

The second principle is progressiveness. The government wants to raise the minimum pension to 85% of the net SMIC (1200 euros), but again with very restrictive conditions. It is time to apply explicitly progressive replacement rates, for example 100% at the SMIC level, 75% at 3 SMIC and 50% at 6 SMIC. Discounts (décotes) should no longer be applied to the lowest pensions. The third principle is fairness in financing. To achieve this, the CSG (generalized social contribution) must be extended. The CSG has had a progressive component since its creation in 1990, with a reduced rate for small pensions. Additional rates could be created on incomes above 5,000 or 10,000 euros per month, as well as a CSG rate of 2% on the 500 largest fortunes, which alone would bring in 20 billion euros per year, which is much needed for hospitals and pensions. One thing is certain: it is by renewing the spirit of justice that we will get out of the current crisis.