Explained: Why France pension reforms are a reminder of India’s NPS vs OPS debate

France has been seeing protests, which have turned violent in recent days, as the Emmanuel Macron government pushes pension reforms through parliament. In India too, there’s a debate on the pension scheme, some arguing that the old method is fiscally unsafe

FP Explainers March 21, 2023 14:43:16 IST
Explained: Why France pension reforms are a reminder of India’s NPS vs OPS debate

Protesters march through the streets of Marseille, southern France after parliament adopted the divisive pension bill, raising the retirement age from 62 to 64. AP

France’s Emmanuel Macron is facing the toughest time of his political career. On Monday, his government narrowly survived a no-confidence motion after the French president pushed forward his pension reforms, much to the ire of labour unions and leaders from the opposition parties.

The vote, tabled by centrist MPs, had 278 votes in favour, falling short of the 287 votes needed. Had it been successful, President Emmanuel Macron would have had to name a new government or call new elections.

As the no-confidence vote has failed, the bill — raising retirement ages of most workers in France from 62 to 64 by 2030 — will now likely go through. The new reforms have angered French workers, who protested over the weekend, with some demonstrators clashing with the police and blocking streets with debris fires in central Paris, as well as cities around the country.

We take a closer look at France’s pension reforms and compare them to India, where a debate is raging over the benefits of the New Pension Scheme vis-à-vis the Old Pension Scheme.

The French story so far

Emmanuel Macron aims to reform the pension system in France; he wants to increase the retirement age by two years to 64. Earlier last week, Macron resorted to using special constitutional powers — Article 49.3 — to push his plan to raise the retirement age through the lower house of parliament.

The legislation will be implemented gradually, with the age increased by three months each year starting from this September, until 2030. Some workers in jobs deemed physically or mentally arduous will maintain the right to retire earlier than most of the working population.

However, the move has not been welcomed by the French people. The labour unions have been protesting against the reform since the start of the year, with such moves ramping up in March.

Also read: A million people rise against Macron’s pension reforms in France

Refineries around the country have been on rolling strikes for 13 days, while garbage workers in Paris have skipped work, owing to which the ‘City of Lights’ has turned into the ‘City of Trash’. Transport workers and teachers have also held strikes.

Explained Why France pension reforms are a reminder of Indias NPS vs OPS debate
French firefighters extinguish burning garbage bins in Paris, France. Protests against the pension reforms have turned violent in the European country. Reuters

The protests over the weekend saw over 100 people being arrested after stand-offs with the police.

On Monday night, hundreds of students also joined the demonstrations, protesting the pension reforms. One university student called Shola told AFP news agency: “People think this subject does not concern us but in fact it does. If our grandparents will now have to work longer, we know that things will get worse.”

Fellow student Marie said they were protesting “because we have been abandoned, because we have been ignored, because it is a government that doesn't care about us, it mocks us”.

The French workforce feel that an increase in their retirement age would result in a reduction of pension payments to beneficiaries. They also believe that the pension reform would negatively impact the low-income workers in physically demanding jobs. They argue that the reform will lead to a decline in the standard of living for retirees.

Explained Why France pension reforms are a reminder of Indias NPS vs OPS debate
A protester holds a French flag, as they attend a demonstration, against the pensions reform bill in Lille, France. Reuters

Interestingly, pension reforms have always been a thorny issue in France. “No pension reform has made the French happy,” Pascal Perrineau, political scientist at Sciences Po University, told CNN on Friday.

It is important to note here that France has one of the lowest retirement ages in the industrialised world.

Explained Why France pension reforms are a reminder of Indias NPS vs OPS debate
Graphic: Pranay Bhardwaj

Despite that each time the country has tried to introduce reforms on the issue, there have been demonstrations. In 1995, weeks-long mass protests forced the government of the day to abandon plans to reform public sector pensions. In 2010, millions took to the streets to oppose raising the retirement age by two years to 62 and in 2014 further reforms were met with wide protests.

Macron’s defence for reform

But then why is Emmanuel Macron so gung-ho in pushing through the reform? The answer is money. According to an estimate made by Macron’s government, failure to act would see the pension system record an annual deficit of €13.5 billion (Rs 1.2 lakh crore) by 2030.

As Budget Minister Gabriel Attal said, “If we don’t do [the reforms] today, we will have to do much more brutal measures in the future,” in an interview with broadcaster France Inter.

The French government has said that with life expectancy rising in the country, retirement at 62 could no longer be sustained. As the New York Times reported, the math, over the longer term simply did not add up as the ratio of active workers to the retirees they were supporting through payroll taxes kept dropping.

Macron had echoed these exact sentiments, saying last year, “If we do not solve the problem of our retirees, we cannot invest in all the rest. It’s nothing less than a choice of the society we want.”

But, many see this as unnecessary and argue that the pension system is not on the brink of bankruptcy currently. Moreover, they contend that it is an attack on the social solidarity at the heart of the French model and a manoeuvre by the rich to move France closer to capitalism.

But French government spokesperson was quoted as saying, “We’re not reforming pensions to be popular but to be responsible. We’ll go all the way because it’s the only way our social model can survive.”

Explained Why France pension reforms are a reminder of Indias NPS vs OPS debate
Far-left lawmakers react as they hold papers reading: "64 years. It is no", "appointment in the street", "we are continuing", at the National Assembly in Paris. AP

The India story

The protests in France do bear a similarity to protests in India over the issue of the Old Pension Scheme (OPS) vs the New Pension Scheme (NPS). For the unaware, starting 2004, the central government, under then Prime Minister Atal Bihari Vajpayee, discontinued the Old Pension Scheme and introduced the New Pension Scheme.

In the old regime, pension was 50 per cent of the last drawn salary of the employee and the entire amount was paid by the government. In the new system, which works on a defined contribution basis, government employees are required to contribute 10 per cent of their salary and dearness allowance to the retirement fund. The government shells out up to 14 per cent for the pension corpus.

Some experts note that India’s New Pension Scheme (NPS) and the proposed pension reform in France are similar in many ways. As a report by News9Live said, “Both aim to address the financial sustainability of the pension system. Both governments argue that an increase in life expectancy has led to a strain on the state’s finances and that the reforms are necessary to reduce the burden of pension payments on the state.”

Government employees in many states are now demanding a move back to the Old Pension Scheme. In Punjab, the Bhagwant Mann-led Aam Aadmi Party government has formed a committee to formulate the standard operating procedure (SOP) for implementing the old pension scheme (OPS). Other states like Himachal Pradesh, Rajasthan, Jharkhand and Chhattisgarh have already junked the new plan.

Explained Why France pension reforms are a reminder of Indias NPS vs OPS debate
Employees shout slogans at a protest rally during their strike in Mumbai. File image/Reuters

In the western state of Maharashtra in India, government workers finally called off their strike on Monday after the Eknath Shinde-led government announced the formation of a three-member committee to conduct a comparative study of the old and new pension schemes and submit a time-bound report.

Employees in the state argued that they would be unable to survive on the “meagre” pension due to them post-retirement under the new scheme. In Haryana too, employees are demanding a switch to the old system.

However, the State Bank of India’s (SBI) October 2022 Ecowrap has said that if all states switch to the old scheme, the value of aggregate pension liabilities will be in the range of Rs 31.04 lakh crore. Other economists have also agreed with the view, saying a switch back to the Old Pension Scheme would entail future fiscal distress for states.

Another criticism of OPS, as per a Hindustan Times report, is that it costs the government a lot of money while only benefiting a few people. Under the scheme, only government employees, and only those who have worked for at least 20 years, are eligible.

With inputs from agencies

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