French employers call for more ambitious pension reform

PARIS Wed Aug 21, 2013 8:58am EDT

Pierre Gattaz, newly-elected head of France's main employers' association MEDEF, delivers a speech after his election in Paris, July 3, 2013. REUTERS/Philippe Wojazer

Pierre Gattaz, newly-elected head of France's main employers' association MEDEF, delivers a speech after his election in Paris, July 3, 2013.

Credit: Reuters/Philippe Wojazer

PARIS (Reuters) - France's main employers union warned the government on Wednesday that the country needs deeper pension reform than it envisages in order to make the costly system sustainable, urging it to break the retirement age taboo.

France's euro zone partners are closely watching its pension reforms, one of the toughest issues on Paris's agenda, because they expect changes in the generous system in return for giving the country more time to get its public finances back in line.

"We cannot wait any longer and be content with half-measures because our pension system is in a disastrous state," the new head of France's Medef employers group Pierre Gattaz wrote in an op-ed in Le Monde newspaper.

Medef will press this point at a meeting with the government and unions on Monday and Tuesday, when Prime Minister Jean-Marc Ayrault is expected to outline more lightweight draft reform plans in a bid to stave off strikes and protests scheduled for September10.

The pension shortfall is seen reaching 20 billion euros by 2020 if nothing is done.

While President Francois Hollande has ruled out increasing the statutory retirement age from the current 62, Gattaz argues that the best way to handle the reform would be to increase the retirement age to 63 and allow for a full pension after 43 years of contributions, up from the current 41.5 years.

Government sources have said the increase in contribution periods needed to get a full pension might largely kick in only from 2020, to soothe labor unions opposed to the plan. The daily Les Echos wrote on Wednesday that the government plans to eventually raise the threshold to 42 years for those born after 1962 and 43 years for those born in 1975 and after.

Gattaz said it was "urgent" to review more than 30 special pension systems that allow the military, police and others to retire much younger. Hollande is expected to leave them unchanged.

The head of the Medef employers' group also called for the French pension system, where benefits are almost entirely borne by the state, to be mitigated by a bigger role for privately funded pensions.

Public spending on pensions is 14.4 percent of output in France versus 12.9 percent in the EU.

Businesses in the euro zone's second-largest economy are concerned about a prospective rise in payroll taxes as part of the pension system reform. Gattaz warned that increasing their contributions would hurt employment further at a time when more people are out of a job in France than ever before.

Ministers have hinted that one of the most likely options to help fill a the pension shortfall is raising income tax tied to social spending.

The government plans to agree a draft law on the pension reform on September 18.

(Reporting by Ingrid Melander; Additional reporting by Julien Ponthus; Editing by Hugh Lawson)

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