A recent report from France’s Court of Auditors asserts that the pension system does not contain a ‘hidden deficit,’ despite significant funding challenges projected by 2045. Prime Minister François Bayrou’s contrasting estimates highlight ongoing debates on pension financing. The Court anticipates a €30 billion deficit by 2045, suggesting reforms such as adjusting retirement age and contribution rates. While the 2023 pension reform may help, it won’t suffice alone, prompting ongoing negotiations for a sustainable solution.
The Court of Auditors’ Stance on Pension Deficits
On February 20, a report from the Court of Auditors in France confirmed that the pension system does not harbor a ‘hidden deficit.’ This assertion comes amid warnings regarding the alarming financial outlook for the system as it faces significant funding challenges by 2045.
As part of the 2023 pension reform reshaped by Prime Minister François Bayrou, the Court was tasked with a ‘flash mission’ to analyze the financial state of the pension system, providing vital insights for upcoming negotiations among social partners. This audit is particularly significant, given Bayrou’s recent remarks that reignited discussions surrounding the system’s deficit, presenting a stark contrast to estimates provided by the Pension Orientation Council (COR).
Financial Projections and Necessary Reforms
The COR projects a financial shortfall of €6.1 billion for 2024, while Prime Minister Bayrou suggests a much larger deficit of approximately €45 billion. His calculation includes additional contributions from public authorities and state subsidies meant to stabilize the pension financing system.
While the Court of Auditors acknowledges the validity of both viewpoints, it ultimately refutes Bayrou’s claims. According to Pierre Moscovici, the president of the Court, the differing methodologies between the public and private systems are too disparate for direct comparison. He emphasized that there is no hidden deficit within the pensions of civil servants and dismissed the notion that technical debates could resolve the overarching financial issues.
Looking ahead, the Court of Auditors anticipates that the pension deficit will escalate to €30 billion by 2045, primarily affecting the general scheme for private sector employees and agricultural workers. Although the 2023 reform is expected to contribute around €10 billion by 2030, it alone is not enough to meet future financial demands.
In light of these challenges, the Court outlines three potential ‘levers’ for addressing the looming deficits: adjusting the legal retirement age, modifying the average level of pensions, and altering contribution rates. The 2023 reform, which proposes gradually raising the retirement age to 64, has faced significant opposition both in Parliament and on the streets.
Moscovici highlighted that setting the retirement age at 63 could cost the public finances an additional €13 billion by 2035, whereas increasing it to 65 could generate an extra €17.7 billion. Furthermore, a one-point reduction in pension indexing relative to inflation could save €2.9 billion in 2025, while a one-point increase in contribution rates could yield between €4.8 billion and €7.6 billion annually.
However, Moscovici cautioned that the broader economic impacts of these changes are complex and difficult to quantify, with a more detailed report expected in April. As negotiations among social partners continue, François Bayrou has set a deadline for the end of May to reach a potential agreement regarding the future of pensions.