As France fails to make in-depth changes to its pension system, the European Commission expressed concerns over the additional burden it could place on the private sector’s competitiveness. 

French Prime Minister Jean Marc Ayrault did not take much political risk when he presented his new proposal for pension reform on Monday (26 August).

The aim of the reform is to halt the systematic loss of pensions whose burden falls on the state every year, and restore the balance by 2020.

But the proposal puts most of the burden on employees and private businesses to contribute to the pension system. The duration of employees’ contributions will be increased but not immediately, being raised every year by one trimester from 2020 to 2035 to reach 43 years in total at the end.

Under pressure from trade unions, a first proposal to raise a general income tax (Contribution Sociale Généralisée – CSG) was dropped, even though it had received broad support from the private sector.

Instead, the reform will raise the contributions for employees and enterprises by 0.3% by 2017. In absolute value, minimum wage beneficiaries will contribute close to €5 per month while private firms will pay a little less.

European Commission reaction

Simon O’Connor, a European Commission spokesperson, said Brussels would make a detailed assessment. He added that the Commission had addressed economic recommendations to France, which were adopted in July.

These recommendations underline the need for stable public finances and lower labour costs, highlighting the hiatus between unemployment and growth on the one hand and budget austerity on the other. The Commission also warned France to avoid an additional deterioration of the private sector’s competitiveness.