Left-wing French politicians protest against a policy seen to be unfair to blue-collar workers

Last night , Emmanuel Macron won his vote – just. He survived two no-confidence votes.The no-confidence motion filed by a small group called Liot garnered support from 278 members of parliament in the National Assembly, falling short by only 9 votes, an unexpectedly close result. A separate one filed by Marine Le Pen’s National Rally party only received 94 votes because other opposition parties remain wary of teaming up with the far-right party.

Macron, the French Prime Minister has picked his fight with the French populace and though two thirds of his voters are thought to be against reform , he’s got political assent to force through an increase in the French State pension age from 62 to 64.

There were other fights he could have picked, he chose this one. Assuming he does not back down, France will now come in line with the EU average on retirement spending. Macron says that will make France more competitive and more productive.

France is thought to be over rewarding the over 60s

France spends about 13 per cent of its national output on retiree benefits, higher than the EU average of 10.3 per cent, largely because the system pays out generous benefits that replace more of workers’ wages than elsewhere.

The country also struggles to keep older people in jobs, so the average effective age that men leave the workforce is 60.4, compared with 62.6 in the EU and 63.8 in the OECD.

Without reform, the government expects the pensions deficit to rise to €13.5bn in 2030. With it, the government expects savings of €10.3bn by 2027 and €17.7bn by 2030.

Implications for the UK

Macron and Sunak get on. It’s clear that the “entente cordiale” that got broken by Brexit , is returning and Sunak will get a clear signal from Macron that working longer is part of a “growth strategy”.

We are awaiting the announcement as to whether we bring forward the planned increase of the state pension age , keep it where it is , or even reverse the recent trend to allow those who might have expected to draw state benefits at 65 or 66 , to do so.

There are other options, we could move to a full and more generous state pension from age 70, with early retirement options for those who are prepared to take less for longer.

We could move to targeted state pensions which were partially underwritten as annuities are.

And Britain has this flexibility because it does not have all it’s eggs in the state’s nest.

The decentralization of pensions away from the state and towards employers and individual pension wrappers means that changes in the UK pension system are not so critical as they are for French workers.

The virtues of a mixed pension system

The UK pension system, for its faults , has many advantages. It encourages self-reliance which suits those with the life-skills to manage their own finances. It is providing a basis for retirement income which is now over £10,000 pa per person, getting closer to the minimum retirement living standard laid down by the PLSA. There is a benefits system – unlocked by pension credit, that offers further help to those without savings.

We have a strong second tier of pensions with defined benefit pensions still accruing for around a third of workers (mostly in the public sector). DC pensions are providing less adequacy and need to be levelled up, this appears the immediate priority of the DWP.

And we have a strong wealth management sector that focusses on managing the pots of the mass-affluent.

When compared with what the French have, we are well placed.

The case for coherent reform

May of my friends, readers of this blog, will consider me a heretic for supporting a mixed pension system. I know that many would like the auto-enrolment system to be managed as a funded version of SERPS with CDC providing people with pensions rather than pots. I can see this working conceptually, but I see zero appetite for Government to take back control of what is still “voluntary saving”.

There is a stronger argument for the seeding  of a £100bn + sovereign wealth fund – there to pay second tier pensions to those who want them paid from a Government fund. I note that Tony Blair and William Hague are calling for just that, through seeding from Nest and PPF. They are  half the way there already.

Martin Wolf , in his latest opinion piece in the FT says that a sensible strategy for the UK needs radical change on pensions quoting Blair and Hague’s paper on a New National Purpose. 

The UK pension system is incoherent, fragmented and risk-averse. Not surprisingly, Blair and Hague note, “overseas pensions invest 16 times more in venture capital and private equity in the UK than domestic public and private pensions do”. This is madness.

He looks back at the last two decades as years where we have gone backwards, chasing the idea of the “safe pension” at the expense of pensions playing a part in a productive economy.

Like Blair and Hague he calls for us to reform private pensions to energize our financial markets, concluding

In many areas, UK policy needs to be bolder, but also wiser. Brexit was bold; but it was not wise. In pensions, the UK has muddled its way through to injustice, inefficiency and absurdity. The time has come to embark on coherent reform. Policies that do not work should be transformed into ones that can.

Pensions will not turn Britain’s fortunes around , but at least they are not likely to sink us. Taking a positive view on the productive capacity of our private system is part of the answer – not the problem.