Successive pension reforms in France have raised the country’s retirement age with the aim of reducing pressure on the country’s finances. Yet as Carl Rihan writes, the impact of these measures on public spending has been less than expected.
France’s pension system, established in 1945 and well-rooted in the pay-as-you-go (répartition) model, has long been considered one of the most generous retirement schemes in the OECD. While the expenditures and cash management aspects of the system are complex, the logic is nevertheless quite straightforward: the country’s current labour force finances the pensions of retirees on a rolling basis.
In recent years, however, France’s ageing population, declining birth rates, delayed inflows into the workforce and slower GDP growth have strained the system’s sustainability, leading the government to consider reforming the system. In 2010, the French government implemented a bold reform, raising the minimum retirement age from 60 to 62 and the full pension age from 65 to 67, with the stated goal of alleviating fiscal pressure.
Dubbed the “Loi Woertz”, the new reform bill also included key exemptions for specific professions and situations. Most importantly, it established policy pathways that were replicated in a more recent, controversial 2023 retirement reform. But are these reforms achieving their fiscal objectives?
Measuring the impact of the 2010 French pension reform
To help answer the question, I used a Google Causal Impact framework to examine whether the 2010 French pension reform meaningfully reduced pressure on the country’s public finances. This is a statistical model that looks at the evolution of a treated series – in this case, France’s government spending as a percentage of GDP before and after the date of the intervention (2010) – and derives a “no-reform scenario” from a control group.
I thus fitted France’s series and added Finland as the control series alongside a variable to account for the 2008-2012 global recession. I ran two separate trials of the model (one accounting for “non-stationarity” and the second ensuring strict stationarity). The results of the first trial are shown in Figure 1.
Figure 1: Estimated impact of the 2010 French pension reform on public spending (model 1)
Note: The black line (Y) shows how public spending changed as a percentage of GDP in France following the 2010 pension reform (indicated as a dotted line in the Figure), while the red dashed line shows predicted public spending if the reform had not taken place.
In the first trial, France’s government expenditure in the period after the pension reform (2011-23) was higher (57.91% of GDP) than the predicted expenditure (53.44% of GDP) if the reform had not occurred. Overall, the model suggested the effect of the 2010 pension reform was increased expenditure of approximately 4.47% of GDP per year. The probability of a causal effect was around 100%, which means this result is highly unlikely to be due to random chance.
Figure 2: Estimated impact of the 2010 French pension reform on public spending (model 2)
Note: The black line (Y) shows how public spending changed as a percentage of GDP in France following the 2010 pension reform (indicated as a dotted line in the Figure), while the red dashed line shows predicted public spending if the reform had not taken place. The figure shows the calculation after log-transformation and differencing in order to adjust stationarity.
In the second trial, however, the picture was somewhat different (Figure 2). The second model showed a slight dip in public spending two years after the reform, but with wide confidence intervals and a probability of only 87.4%, making the picture more uncertain.
Rethinking pension reforms
Neither of the two models provide compelling evidence the 2010 pension reform led to a large reduction in French public spending. Indeed, the first model suggests the opposite occurred and that spending increased due to the reform. But why might this be the case?
One possible explanation is that France experienced a surge of workers opting for early retirement ahead of the new rules, which led to a front-loading of pension payments that was sustained well after 2010. The reform also had transitional concessions embedded within it that could have limited any reduction in spending.
Taken together, the findings suggest that increasing the retirement age is not a silver bullet and that such reforms must be anchored in more comprehensive medium-term fiscal frameworks. Introducing a dual-pillar system, similar to Switzerland’s model, could improve the system’s sustainability in a more measurable way.
Such a system would spread risk across different investment funds, align contributions with individual choices, incentivise productivity and reduce reliance on intergenerational transfers. It would also lower payroll contributions, thus significantly raising real wages and increasing labour participation rates.
Note: This article gives the views of the author, not the position of EUROPP – European Politics and Policy or the London School of Economics. Featured image credit: Hadrian / Shutterstock.com
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