FRANCE – The International Monetary Fund says French pension reform is likely to raise participation rates – which would have a positive effect on fiscal sustainability.

“Aside from directly reducing the projected cost increases, the soon-to-be-phased-in changes in the contribution period and the system of discounts (décote) and premiums (surcote) stand to raise participation rates appreciably,” the IMF says in a report on France.

The government plans to extend the employee contributions period to 42 years by 2020, compared to the current 40 years for private sector workers and 37.5 years for public sector workers.

The IMF said this would boost potential growth with “positive feedback effects on fiscal sustainability”.

And it welcomed the fact that five-yearly assessments of the system's prospects have been formalized. It added: “These assessments should be used as an opportunity to further phase out differences among pension regimes, adjust key parameters to improve labour market performance, and verify whether the steep reduction in structural unemployment that is envisaged to free resources for the pension system is on track.”

It called pension reform a “key and difficult milestone on the way to fiscal sustainability”. “That such a commendable reform succeeded in a weak economic environment owes much to the foresight and tenacity of the authorities.”

But it says the challenge is to build on this achievement – most notably on the health care front. It warns: “If left unchecked, the rapidly rising health care costs risk undoing much of the fiscal sustainability gains from pension reform.

The IMF’s endorsement comes after the French general assembly has finally agreed to the pension reform proposals to be put forward to the senate this week.