"Pension reform is essential when you compare yourself in Europe," President Emmanuel Macron said in late January. Since the presentation of the bill, comparisons with such and such a European country have regularly arisen in the debate, whether to justify the reform or, on the contrary, to criticize it.
But is it really relevant to draw a parallel between the British New State Pension, based on a strong dose of capitalization, and France, which favors pay-as-you-go? The Balts, more than a third of whose retirement resources are earned income (as retirees), and the French, who work the least in Europe after retirement?
Different pension schemes, greater or less capitalization, differences in the legal retirement age, the real age or the pension levels: the contrasts from one country to another are so strong that it becomes risky to take only one element to compare the countries.
At the heart of the spirit of the pay-as-you-go pension system is the idea that working people contribute for previous generations. Conversely, capitalization implies contributing only for oneself (or for one's company) and receiving one's savings once retired.
All European countries have a pay-as-you-go pension system… mixed with capitalization to varying degrees. In the United Kingdom and the Netherlands, the sums managed by pension funds or private pension funds account for more than half of total pension expenditure.
The only exception to the breakthrough in capitalization, France operates entirely on a pay-as-you-go basis, both for its basic scheme and for the supplementary schemes – which does not, of course, prevent you from building up your own savings for your retirement. This principle is not called into question by the reform proposed by the government.
Another difference: in the UK and the Netherlands, there is a basic flat rate, a minimum sum paid to pensioners, regardless of their salary level. Although this mechanism is strongly redistributive in principle, the flat rate is relatively low compared to the standard of living: it represented 830 euros for a British pensioner and 1,300 euros for a Dutchman. In all the other countries, which base the compulsory scheme on wages, pension levels vary enormously: between a third of the old wage in the Baltic countries and 90% in Hungary or Portugal.
If the president of the Mouvement des entreprises de France (Medef), Geoffroy Roux de Bézieux, keeps repeating that France is the European country where people retire the earliest, the retirement age overlaps with various realities.
For example, the legal age – at which one can claim pension rights – is different from the real or effective age – the moment workers choose to retire. The oft-cited gap between the legal age of 62 in France and 67 in Germany narrows considerably when comparing the effective retirement ages of the two countries: 63 and 65. In Germany, Luxembourg or Austria, the majority of workers retire before the legal retirement age, while in France, Sweden or Greece, they leave after.
This choice is often influenced by the existence of discounts pushing back the age at which one can claim full retirement. Workers then prefer to work longer to increase the level of their future pension.
If we compare full-rate departures, France has the latest (67 years), ahead of Germany (65 years and 11 months in 2023, evolving to 67 years in 2030). Except that the full retirement age or its equivalent, called "normal retirement age" by the Organization for Economic Co-operation and Development (OECD), does not exist everywhere. In some countries, the pension is only paid in full if other conditions are met – period of contribution in the United Kingdom and Belgium, length of residence in the Netherlands, etc.
Another effect of these discounts is that many retirees must continue to work after their pension rights have been liquidated: "In many countries, the average age of liquidation is lower than the average age of exit from the labor market, in particular for women, because of the continuation of activity, including part-time, after the liquidation", recalls the 2020 report of the Pensions Orientation Council (COR). On the contrary, the French early retirement system makes it possible to leave the labor market before reaching the age at which one will liquidate one's rights.
Most often, a retirement pension is determined on the basis of a legal age and a contribution period determined in advance. But subtleties come to complicate the deal.
Thus, some systems do not provide for a minimum contribution period: in Sweden, there is only an age from which one can become eligible; in the Netherlands, pension rights are open to all residents, without even working. Moreover, these contribution periods vary enormously from scheme to scheme – thirty-five years for Italian women (under the “opzione donna” system) versus forty-five years in Germany. In addition, they do not give access to the same benefits: full rate, discounts, premiums...
The comparison is once again perilous for countries with systems that encourage working later, which penalize an employee who stops working earlier than the legal age or, on the contrary, which increase the level of his pension if he contributes Longer. Discount and premium having their own access conditions by country, these variables cannot be compared without taking into account the policies, related to the employment of seniors, in which they are part. “At 60, in the Nordic countries, you get training, like in manufacturing in Germany. There is a massive effort to improve and adapt working conditions for aging employees,” adds Bruno Palier, CNRS research director at Sciences Po.
If we want to compare the living standards of retirees, we can, as the OECD does, compare the average net income of those over 65 with that of the total population. We thus see Luxembourg, France, Italy and Portugal prancing in the lead, while at the back of the pack, the Baltics and the Czechs suffer a significant drop compared to the rest of the population when they reach retirement.
However, this parameter changes over the course of retirement, particularly in countries where the oldest continue to work: if this income occupies an important place in all of their subsidies, there is an air pocket when they completely stop receiving a salary, as in Sweden, where the standard of living drops sharply (−27 points) from the age of 75.
Another value that is frequently used to compare schemes is the replacement rate, which relates the retiree's pension level to their former salary. Even focusing on a test case (full career in the private sector, started at age 22) and common macroeconomic assumptions (such as an inflation rate artificially set at the same level in all countries), the disparity of pension systems prevents any relevant comparison. Italians, for example, enjoy a replacement rate of more than 80%, but this rate is likely to drop if life expectancy increases. Indeed, in a defined contribution system where an employee knows how much he must pay (unlike in France, where he knows how much he will receive), the annual benefits are reassessed regularly according to the life expectancy of each generation.
"Strictly speaking, it would also be necessary to include in the remuneration of private sector employees the elements of employee savings, but it is generally more difficult because the quantified information on this subject is partial", adds the COR.
Last subtlety, some pensions are revalued over time in order to maintain the purchasing power of retirees, making comparisons of replacement rates during liquidation pointless. In France, benefits from the basic scheme are supposed to be adjusted in line with inflation, at least once a year; in Germany and the Netherlands, the amount of pensions follows the evolution of wages.
Contrary to popular belief, special regimes are not a French exception: they "exist in almost all the states of the European Union", observes a report from the European Commission.
Broadly speaking, special schemes refer to advantageous public pension schemes, reserved for certain difficult professional categories (miners, railway workers, etc.) or essential to the smooth running of the State (civil servants, soldiers, law enforcement, etc.). . However, in detail, their exact scope varies greatly depending on the country: thus, professional sportsmen have a special regime in Italy, like bullfighters in Spain or journalists in Belgium.
While the special schemes only concern 2.2% of pensioners in Ireland, they benefit 22% of Polish pensioners, according to the same European Commission report.
The very idea that special regimes are linked to a corporation is not universal: they concern priests and bishops in Denmark, mothers of large families in Lithuania, victims of Chernobyl in Latvia. In France, this type of situation would rather come under social benefits linked to the family or health, which distorts the comparison.
The last presupposition relates to their advantageous character: the Netherlands and Sweden have special regimes which do not grant any advantages. Finally, a purely practical point prevents them from being compared: the last census of special schemes in the European Union was done on a voluntary basis. "As a result, in most cases, no detailed projection is available," regrets the European Commission.
