The French government’s targeted universal pension system must be supported by a solid pool of reserves, which should be managed for the long-term and for the benefit of the real economy, according to the French institutional investors association Af2i.

Af2i also said the reserves built up by some of the myriad schemes making up France’s current mandatory pension system must not be diverted for purposes other than those for which they were originally intended.

Jean-François Boulier, president of the association, said the government’s choice of a universal pensions system on a pay-as-you-go basis “necessitates the management of reserves in order to guarantee the system’s flexibility and security, and to instil confidence in the new system among the public”.

Reforming France’s pension system was one of president Emmanuel Macron’s major policy pledges when he was elected in 2017. The country’s existing 42 different schemes are to be unified under one rulebook to create a “universal” pension system, funded on a pay-as-you-go basis.

One key principle was that a given contribution should give rise to the same pension rights regardless of the contributor’s profession.

Jean-Paul Delevoye , the high commissioner responsible for the reform, has conducted a busy outreach programme since his appointment in September 2017, consulting with the social partners and attending various debates and events with different stakeholders. The reform law is due to be adopted by the end of this year, and implemented from 2025. 

More reserves, but no additional tax

According to Boulier, the time was right to address financial aspects of the new system, with the “number one question” for Af2i concerning funding reserves.

As of the end of 2016, Af2i said, certain so-called “complementary” schemes – which provide members of different professional affiliations with pensions on top of the base social security pension – had €118bn in reserves. Taking other pay-as-you-go schemes in the mandatory system into account, reserves amounted to nearly €130bn.

In Af2i’s view, more reserves were needed given that €300bn-worth of pensions are paid out every year in France, according to the association’s data.

It has recommended that reserves equivalent to one or more years of pensions be progressively built up, and for this to be financed without adding to the tax burden in France.

The association’s idea is for CRDS, a tax created in 1996 to repay government social security debt, could be reallocated to build up reserves.

Af2i said building up reserves in advance would be more rigorous and efficient than borrowing to plug deficits.

Af2i’s pronouncements about the pending pension reform follow its decision last year to make pensions a bigger focus of its work. It set up a pension investments committee to co-ordinate and channel its work in this area, led by Henri Chaffiotte. Chaffiote is Af2i’s treasurer and secretary general of the Caisse Autonome de Retraite des Médecins de France (CARMF), which manages the mandatory pension schemes for doctors working in the private sector.

”We will pay close attention to the government’s proposals on the management of the future universal system’s reserves and, once these are known, will express our position,” said Chaffiotte in a statement this week.

The ant and the grasshopper

Af2i president Jean-François Boulier cited French poet Jean de la Fontaine to articulate his concerns about how pension reserves could be used.

The investor association has emphasised that the reserves accrued by some schemes should be for the benefit of those who paid in. Some French schemes have accrued reserves that would cover several years of pension obligations, others several months, and yet others are in deficit, Boulier said.

There has been speculation about the fate of accrued reserves, although no official statement has been made. 

Referencing a De la Fontaine fable, Boulier said: “When it comes to unifying [the multiple schemes] one could imagine the thought arising to use the reserves of those that have been like the ant to help those that were like the grasshopper.”

In De la Fontaine’s verse, the ant’s opposite is a “cigale”, which is actually a cicada. However, many readers may know the story as one of Aesop’s fables, in which the main characters were the ant and a grasshopper.

The story tells of an ant and a grasshopper and their preparations for winter, with the ant having stored food and the grasshopper having spent summer “singing and dancing”. When winter comes, the grasshopper has no food and turns to the ant for help.

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