Why the French state pension is about to bring down Macron

Macron

Emmanuel Macron’s controversial pension reforms have loomed over his second presidential term – and could now be his undoing.

Under the proposals, France’s legal age of retirement will gradually rise from 62 to 64 by 2030, and citizens will need to work for 43 years – up from 42 – to receive a full state pension, which averages around €1,500 (£1,266) a month.

The decision has been met with bitter resistance from political opponents, unions and the French public.

Protests erupted across the country last year as millions of workers demanded the policy be reversed – as well as an improvement to economic conditions more generally.

“The pensions issue is a lightning rod for angry voters,” said Alex Everett, European investment manager at abrdn.

“This is quite possibly the issue that brings Macron down.”

Protests erupted across France last year as millions of workers demanded Macron's policy be reversed - Kiran Ridley/Getty Images Europe

This may seem like an overreaction to British workers, who have reluctantly accepted a state pension age of 66, and another rise to 67 by 2026.

France has one of the lowest retirement ages in Europe and one of the highest state pension entitlements relative to the cost of living.

The French state pension is based on a final salary calculation.

On average, pensioners receive around 74pc of their pre-retirement earnings, according to research from the Organization for Economic Co-operation and Development.

The figure stands in stark contrast to just 58pc for British retirees, and an average of 68pc across the European Union.

Despite this generosity – or perhaps because of it – Mr Macron has paid a heavy political price for pushing through the “painful but necessary” reforms, according to George Moran, European economist at Nomura.

Mr Moran said: “The pensions issue has had a permanent scarring effect upon him.

“Macron got elected on this policy. But actually pushing it through has been a turning point in his political fortunes.”

Voters will have another chance to vent their ire at the ballot box on Sunday.

It is the first round of a snap parliamentary election called by Mr Macron after his party was trounced by the hard-right National Rally (RN) in European elections earlier this month.

The latest polling puts RN ahead on 37 points, followed by the left-wing New Popular Front on 29 points, with Mr Macron’s centrist coalition Ensemble trailing on 21 points.

Mr Macron’s party lost its absolute majority in the National Assembly in 2022, and a hostile prime minister would further erode the president’s domestic authority.

If Jordan Bardella, Marine Le Pen’s protégé and the RN’s 28-year-old leader, manages to command a majority and become prime minister, it would hand his party control of France’s tax and spending plans – including pensions.

Ahead of the 2022 presidential election, RN then led by Mrs Le Pen pledged to reduce the state pension age from 62 to 60.

Mr Bardella has vowed to overhaul Mr Macron’s pension reforms, but his language has softened in recent weeks.

In a bid to court the vote of business leaders and present his party as fiscally responsible, Mr Bardella has dialled down his enthusiasm for fully reversing the state pension age hike.

“We’ll see,” he said, after being asked about the policy earlier this month. “Economically, I’m reasonable.”

Jordan Bardella, leader of the National Rally, has softened his vow to overhaul pension reforms - Mohammed Badra/Shutterstock

Maxime Darmet, a Paris-based economist for insurer Allianz Trade, said RN was now pursuing a “partial reversal” of Macron’s policy.

“[Mr Bardella] wants people who start work at 20 to retire at 60, after 40 years of work.

“But for those who started working later, it’s not clear if he wants to keep the current system of 62 or 64.”

However, RN’s populist spending plans – including reducing inheritance tax on the lower-middle classes and cutting VAT on energy bills – have been condemned by economists as unaffordable.

One independent think tank has warned the RN’s programme would increase the French deficit by €100bn this year, if fully implemented.

But on pensions, the French public is firmly on Mr Bardella’s side. There is a “strong desire” among voters to reduce the retirement age, Mr Moran said.

He added: “There is a lot of political will too, especially if we get a new parliament which will probably be composed of the extreme right and left – the centre is being squeezed.”

The irony, according to Mr Darmet, is that Mr Macron’s pension reforms have actually improved the situation for some groups.

“Before the reforms, the minimum pension was 75pc of minimum wage for low income workers – after the reforms it’s 85pc.

“One problem is that Macron hasn’t been good at communicating the benefits of the changes.”

The president has ploughed ahead out of economic necessity.

The International Monetary Fund expects France’s debt-to-GDP ratio to hit 118.5pc by 2027. It stood at 98.1pc when Macron came to power.

Public expenditure on pensions was worth 14.9pc of national GDP in 2021, according to the Eurostat – the fourth highest in the EU after Greece, Italy and Austria and well above the 12.9pc average.

Mr Macron has argued that raising the retirement age is the only way to maintain the state pension system as the retired population grows.

Without change, forecasts suggest that the pension budget could have a deficit of €13.5bn (£11.4bn) by 2030.

Under the reforms, the minimum retirement age will rise gradually by three months per year from September 1, reaching 64 by 2030.

Pushing back the retirement age by two years and extending the pay-in period would bring an additional €17.7bn in annual pension contributions, allowing the system to break even by 2027, according to labour ministry estimates.

But with a truculent population willing to fight hard to maintain their generous pensions, winning the intellectual argument may prove a hollow victory for the president.

Mr Everett said: “The electorate will eat from [RN’s] hand on anything that will reduce the pension hit which the French public has been very unhappy with for a long time.

“The argument against lowering the state pension age is that we can’t afford it, but voters don’t tend to think in those terms.”

Pensions are an important issue in the upcoming election, Mr Moran said, and the results next Sunday will inevitably impact on the president’s political future.

“Macron has promised not to resign. But if his party gets a very small share of the vote – under 10pc, say – then he’ll be under immense pressure.”

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