Pension reform: Firms and workers to pay more

The French Prime Minister put an end to all the speculation on Tuesday when he unveiled his long-awaited programme to reform the country's debt-ridden pension system. The announcement is unlikely to go down well with many unions.

Pension reform: Firms and workers to pay more
Protesters take to the streets of Paris in 2010 to show their anger against pension reforms. Photo: Miguel Medina/AFP

France's Socialist government unveiled a major effort to reform its debt-ridden pension system on Tuesday, in the latest effort to shore up state finances without provoking protest.

Under pressure from Brussels, France is looking to plug holes that will see its generous state pension scheme fall more than €20 billion ($27 billion) into the red by 2020.

But pension reforms are highly contentious in France – with previous efforts in 1995 and 2010 sparking mass protests and damaging strikes – and this latest effort could be the biggest test yet for President Francois Hollande's government.

The announced plan, which will be officially tabled September 18, avoids some of the more controversial proposals floated in recent weeks that included slapping a new tax on French retirees.

Instead, the government proposes that employees as well as businesses pay more every month to France's retirement system, a measure sure to raise eyebrows with the cost of France's generous social net already one of the highest in the world.

The plan also incrementally raises a French worker's contribution period from the current 41.5 years to 43 years by 2035.

The government said the measures would save the state's strained retirement system 7.3 billion euros by 2020, with the books balanced by 2040.

Most of France's biggest unions dismissed the proposals and said they were holding to a previously announced protest set for September 10.

The European Commission earlier this year urged recession-hit France to reform the pension system as it agreed to give Paris an extra two years to hit the EU-mandated deficit target of three percent of GDP.

Despite the concerns over the medium-term for the French pensions system, officials have said the country – which has one of the highest birthrates in Europe – is not facing the same long-term crisis as other developed economies with ageing populations.

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