Sunday, 22 Apr 2018

Pension Reform: What to Expect

The end of special diets

Currently, there are no less than 42 different pension schemes, with rules for calculating contributions and often very different pensions. Most of the assets contribute both to a basic scheme (up to the social security ceiling of € 3,311 per month) and to a supplementary or additional scheme on all or part of their income. Some professions come under a single regime that includes the base and the complementary. But most French people will contribute to at least three different funds during their career.
Special diets
Certain trades, such as the military, the employees of the SNCF and the RATP, EDF and GDF, the agents of the Bank of France, the sailors or the clerics of notaries benefit from special schemes. These special schemes were created for employees of large public service companies or parapublic to compensate for the hardship of work. Everyone contributes to a different pension fund, which gives them different rights. For example, the employees of EDF and GDF contribute to the National Pension Fund for Electrical and Gas Industries. Among them, those who work in the “unhealthy services” (in facilities with harmful products, in the sewers …) retire at 50, and must justify 10 years of work.
It was already one of the points of his electoral program: Emmanuel Macron wants to harmonize the pension system and thus put an end to the special schemes. Its goal is to create a unique retirement system within 10 years. “One euro contributed gives the same rights for everyone.” The same calculation rules would apply for all assets, whether they are private employees, civil servants, self-employed or benefit from a special scheme. However, each plan would maintain its own contribution rate. The amount of the contributions would therefore be different depending on the status.
By points / notional account
Most basic pension plans operate in annuities: the amount of the pension is calculated from the number of quarters worked. To receive the best pension possible, you must have contributed for a minimum number of quarters. From 167 quarters for those born in 1957, to 172 for those born after 1973. It is therefore necessary to have worked between 42 and 43 for a full pension.
For those who retire before contributing to the number of quarters, the basic pension is reduced. Retirees under 67 years of age receive a discount of up to 25% until they reach the minimum number of years worked.
To harmonize the pension system, the government is working on two pension calculation assumptions.
A retirement by points
Throughout their career, assets accumulate points. When they retire, their points are converted into a pension. The amount of the pension depends on the value of the point, which is calculated according to many indicators, such as the number of active and retired people in the country, the demographics or the life expectancy of a generation … In a point system , a minimum amount of pensions is no longer insured, since it depends on the value of the point.
The system of notional accounts ”
In this case, we imagine that the worker has a virtual account on which is deposited all of his retirement contributions throughout his career. At the end of his working life, this virtual capital is converted into a retirement pension thanks to a conversion factor. This coefficient is calculated according to the retirement age and life expectancy. Dividing the accumulated capital by the conversion factor gives the pensioner’s annual pension.
Alignment of the public and private
In the public sector, the retirement pension is calculated from the last six months of wages, which are often the highest. For employees in the private sector, the calculation is based on the best 25 years. Thus, it is often more advantageous to start one’s private career and end up in the audience than the other way around.
On the other hand, for each of her children, a private employee will be entitled to four quarters of increase and may retire earlier. An employee will only be entitled to one year of increase. Starting at the same time, his pension would have suffered a discount of 15%.
The goal of future reform is to erase these differences, presented as injustices by the government.
Emmanuel Macron rejected the idea of ​​a perfect alignment of the civil service regime with that of the private sector. Nevertheless, the recasting of the system should bring the two regimes closer together, as the Court of Auditors has advised since 2003.
95 % of losing public servants ?
Ifrap, a liberal think tank, has studied the impact of public alignment on the private sector. The results published last March are without appeal: a majority of civil servants would see their pension decrease. In the event that premiums are not taken into account for the calculation of the pension, 95% of civil servants would be affected: their pension would fall by an average of 21%. In the case where pensions would be included in the calculation, 66% of civil servants would see their pension decrease by 7% on average.
Professional mobility facilitated
Smoothing pensions between public and private would aim to adapt to the growing professional mobility of French assets. The transition from the public to the private sector and vice versa would therefore have no impact when retiring.
The fundamentals maintained
Today and tomorrow
Whatever the option chosen by the government, the President of the Republic assured that the three fundamentals of the French pension system will be maintained.
A mandatory system …
As soon as we start working, we also start contributing for retirement. This contribution is defined according to the salary.
… By distribution …
The amount of contributions paid by all assets is used to pay retirees’ pensions. Each generation thus pays the retreat of the one who precedes it.
… and contributory
The retirement pension is calculated according to the age of departure, the number of years worked and the income. In addition, the amount of pensions is proportional to the amount of contributions paid in a career.
Retirement at age 62
The question of the legal retirement age is often a source of great tension. Emmanuel Macron assured that he would not change during his five years and that he would remain fixed at 62 years. However, the two assumptions studied for redesigning the system (point retirement or notional accounts) encourage people to work longer. For example, in Sweden, where the system of notional accounts applies, the legal age is 61, but most of the assets continue to work until they are over 65. In fact, the coefficient used to calculate the amount of the pension is determined according to the age of departure: the longer one works, the higher the pension.

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