The roses can wait ... even in France
SwissInvest strategist Anthony Peters does the maths around early retirement
I NOTED A couple of weeks back how perplexed I was by the promise that Francois Hollande, the centre-left candidate for the French presidency, made that he would reintroduce state retirement at 60. Seeing that I can see my own 60th birthday if I stand on my tiptoes, I should be all in favour of kissing the cut and thrust goodbye and trotting off into the sunset in order to grow roses and to bake my own bread. I rate as being a tail-end baby-boomer, so the prospects for my retirement don’t look too bad. However, I’m not quite ready to cash in and turn off my screens yet, so I will continue to pay into the National Insurance pool rather than drawing from it.
Anyhow, when Hollande’s economic adviser, Karine Berger – tipped for the Finance Ministry should Hollande win the election – explained that the retirement age of 60 was not an automatic one for all citizens, I listened a bit more sharply.
The word is that the French will be able to retire at 60 only if they have made contributions to the state retirement scheme for 41 years. In other words, only those who have been in unbroken employment from the age of 19 will find themselves eligible. Laudable sums, maybe, but ones which don’t really add up – or at least not in my book.
It’s one of those old chestnuts that the retirement age was set at 65 when life expectancy was only marginally beyond that and that as we are now living longer we need to either work longer or die earlier. I am not an actuary and therefore don’t purport to understand the stats behind mortality tables but I did learn a little basic arithmetic when I was at school.
If, let’s briefly assume, I left school in 1945 at the age of 15, worked until I was 65 and died when 75, I would have worked for 50 of my 75 years. From that we can either conclude that I have worked and paid contributions for two-thirds of my lifespan or, if we assume that the cost of living for the first 15 years are met by my parents, that leaves a working life to retirement ratio of five to one. Not only that, but the number of contributors to the state retirement fund who did not make retirement age thanks to smoking, drinking or both was considerable.
HOLLANDE IS LOOKING at 41 years of contributions as the benchmark. As at 2011, life expectancy in France was 81.19 years. For men, it was 78.02 years, for women 84.54 years. If a male was to work the mandatory minimum and retired at 60, he could expect to draw for just over 18 years; if he were a she, the retirement would be 24.5 years. So even in the benchmark case, the period during which a senior citizen would be on retirement benefits would be, give or take, half of the period during which they contributed. Forty-one years might sound like a long time to work but in terms of a percentage of the total expected lifespan, it is not enough.
It is not without reason that, apart from France, pretty much everyone else has concluded that we need to extend and not shorten the working life
So the argument on retirement ages ought not be fought on the basis of integers but in terms of what percentage of a total expected lifespan is needed in social security contributions in order to fund the years of drawings.
EVIDENTLY SOME OF us – and most of the readers of this column, I assume – will be contributing a number significantly higher than the average and will therefore be subsidising equal pension rights for all, but all of that will not suffice to provide a living pension for most.
It is not without reason that, apart from France, pretty much everyone else has concluded that we need to extend and not shorten the working life. If a firm percentage of expected lifespan were to be defined as a prospective working life and raised and lowered, based on actuarial forecasts, we might end up with a far more equitable and sustainable system – even though it would instantly fail to be adopted because it would mean women working longer than men. However, I do believe that there might be the basis for a pertinent discussion along these lines.
In 2000, the socialist government of Lionel Jospin introduced the 35-hour week on the assumption that if people worked a shorter week, it would leave space open for more people to be employed. Since then, unemployment has remained by and large in the 8.5%– 9.5% range. In the UK, the average unemployment rate for the same period was 5.8% and, even now, in the deepest of the gloom, it is at 8.4%.
The theory that the 35-hour week would suppress unemployment might not have been conclusively disproven but it doesn’t garner too much support from the uniform ILO method statistics either. If Hollande wants to argue that early retirement will make jobs available for younger people, which no doubt he does, the flop of the 35-hour week as the panacea of job creation might serve as an object lesson.
However, one can never fault the French for not having tried to create innovative solutions to intractable problems. They gave us the French Revolution, they gave us Napoleon and they gave us Jean-Michel Jarre. If plagiarism is the highest form of flattery, then the fact that they are alone on the 35-hour ice floe heading south speaks for itself. I’d suggest that retirement at 60 will be heading in the same direction – if ever it makes it from the election leaflet to the statute book. In the meanwhile, the rose bed and the bread oven will have to wait.