two pension reforms under a single cause

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The French have filled the streets to protest the pension reform. Two weeks ago, the Government of Emmanuel Macron made public his will to increase from 62 to 64 the minimum age to retire. A decision that has generated great discomfort between the unions and French citizens, who are not willing to worsen their conditions to retire. If approved, this measure would be accompanied by a extension of the contribution period to receive the full amount, which will go from 42 to 43 years. The unsustainability of the French pension system shares many points in common with the shortcomings of the Spanish model. For this reason, each one in their own way is trying to redirect their deficit.

Spain and France are the two countries in the European environment with the lowest ordinary retirement age, according to the latest data published by Eurostat. At the same time, their economies are characterized by low productivity compared to northern European countries, low employment rates and excessive weight of SMEs in the productive fabric. Something that causes the two territories to be very similar in the matter of public pensions. In the same line, France is positioned as the third country that allocates the most to these items, with 14.3% of the Gross Domestic Product (GDP), only behind Greece and Italy. While Spain, with 11.6%, although it does not reach that much, it is also above the OECD average (8.5%).

Added to this is the effective retirement age is 60.8 years old, according to the French Ministry of Labour. While in Spain the figure is 62.1 years for men and 61.3 for women, according to data from Social Security. This fact, together with the fact that both countries have a very high life expectancycauses them to be the two countries in which a new pensioner has the longest time ahead to collect their benefit: more than 26 years for women and around 22 years for men.

The problem is that this situation is not accompanied by a sufficiently solvent labor market to compensate through contributions for the high investment in these remunerations. In other words, neither system has enough workers enough to pay current pensions (in Spain there are already two workers for every pensioner), much less to pay future retirements which, in line with the rise in wages, will be higher. All this despite the fact that Labor taxes in France and Spain are already among the highest in the world. If the average social contributions (between companies and workers) are observed, it can be seen that the French contribute with 27.5% of the salary and the Spaniards with 28.3%.

The reforms seek to stabilize the reserve funds

Macron’s cabinet has a clear objective in undertaking this reform: achieve equilibrium in the system, threatened by a deficit of up to 14,000 million from 2030 if the situation is not redirected. Under current legislation, the contribution period must be established at 43 years from 2035, but the Macron government wants to advance this calendar and require 43 years of contributions from 2027. All those people who have not contributed all this time will see their reduced pension. A change with which they aspire to save 18,000 million and that could lead fifty thousand people to postpone their departure this year, according to the French Higher Council of Public Finance.

But the reform is not limited to addressing the age and the retirement period, but also incorporates some measures of a social nature. In this sense, the text will establish the minimum retirement pensions at 1,200 euros for all those retirees with a full career, that is, with 42 or 43 years of retirement. Although it is an improvement that will benefit few people, since most of the citizens who collect these amounts do not have the full career (especially women). Younger people also question this supposed benefit, aware that it is increasingly difficult to contribute for that number of years. All in all, this increase in the minimum monthly payments beats the Spanish minimum pensions by far, half of which will not reach 1,000 euros even with the revaluation planned for this year.

Despite the majority rejection of public opinion, the French government approved its reform on Monday, against which more than a million people demonstrated on Thursday, and It will begin its parliamentary process in the plenary session of the National Assembly (lower house) from February 6, before his arrival in the Senate (upper house). Both the left and the extreme right have already announced that they will vote against it.

Combat the aging of the population

In general, as the years go by, it becomes increasingly complex to leave the labor market. In Spain for more than a decade, the conditions for the early retirementwhose minimum age has already increased by 13 months this past year, have been tightened together with the requirements of the ordinary retirement in order to save the pension piggy bank. In this way and in accordance with the provisions of Law 27/2011, the retirement age has increased for those people who do not reach 37 years and nine months of contributions, standing at 66 years and four months.

With the same goal as Macron, the government of Pedro Sánchez reached an agreement last 2021 on the pension reform with social and business representatives. Among the measures that were adopted, the increase according to the CPI stands out, which this 2023 has been executed for the first time, applying a plus of 8.5% to all tax amounts. But if it was already complex to bring positions closer at that time, in this second negotiation between the unions, the CEOE and the Ministry of Social Security, the matter is even more tense. In fact, the Government continues to finalize the last fringes of the plan that it must present to Brussels to receive the payment of the Recovery Funds in April.

This second phase of the pension reform is carried out, to a large extent, by the highest incomes. The increase in maximum contribution bases so that the highest salaries contribute more to Social Security, which entails a progressive increase in maximum pensions. Although the origin of the disagreement was triggered by the proposal to expand the pension calculation period from 25 to 30 years. An option that both government partners and social representatives categorically rule out. The latter have also threatened mobilizations in the event that the Executive takes these proposals forward without having their approval.

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