France’s pension turmoil highlights global challenge of caring for aging population : NPR
France’s generous pension system has toppled governments on funding issues. It’s part of a larger problem as nations rethink how to finance care for their aging populations.
TO MARTÍNEZ, HOST:
France has one of the most generous pension systems in the world, with the average retiree receiving the equivalent of around $1,900 per month. Five prime ministers in just two years have been ousted or resigned over the way the project was financed. In fact, globally, population aging is forcing governments to rethink their assumptions. Meet Darian Woods and Wailin Wong from Planet Money’s The Indicator.
DARIAN WOODS, BYLINE: The French retirement system has many different details, but the basic principles are quite similar to Social Security in the United States.
WAILIN WONG, BYLINE: What’s quite different from the U.S., though, is the amount retirees receive.
CHRIS MAHONEY: Ultimately, France is much better than the others.
WONG: Chris Mahoney works for the financial company Mercer. She runs her retirement business. And she oversees a report each year that evaluates retirement systems around the world.
MAHONEY: The fit measure that we use. Think of it as having enough money to live a dignified retirement. France is an A.
WOODS: An A grade. Very good. But can they pay for it?
MAHONEY: France is a D.
WOODS: D on sustainability. So you’re saying that the money… it’s not clear where it will come from in the future.
MAHONEY: That’s true. The reliability of it. And so a D is a really concerning grade.
WONG: To give us more details on what exactly gives the French system such a low sustainability rating, we spoke to David Knox, Chris’ colleague. David puts France’s retirement spending into perspective.
DAVID KNOX: The annual cost for the public person or for the government is around 14% of GDP.
WOODS: You compare that to the United States, where pensions are about 7% of GDP.
KNOX: So you can begin to understand why the French pension system is under pressure – because it’s expensive.
WONG: One of the best things about the United States for many retirees is the amount they have saved for retirement.
WOODS: In the United States, the total of all our private and public retirement savings is about 150 percent of GDP, or the equivalent of a year and a half of economic output.
WONG: That 150% of GDP in the United States is largely due to retirement savings plans like the 401(k). Today, David points out that there are inequalities, as only around 50% of workers contribute. But in France, retirement savings are generally low compared to the United States.
WOODS: This partly explains why it has been so difficult to make changes to the French pension system. The French government did try to raise the retirement age to 67, but public anger scuttled the idea. David has some ideas on what a sustainable retirement system would look like.
KNOX: There is no single answer.
WONG: David envisions a system in which the government pays a universal basic pension, perhaps 25 to 30 percent of the average wage. This amount is paid to anyone over a certain age, and this age increases automatically over time as life expectancy increases.
KNOX: This is not a political decision. It’s a semi-automatic decision.
WOODS: Next, David would like to see the government require everyone to save a portion of their income in retirement savings, whether or not you’re full-time, casual, or self-employed, much like a common, mandatory 401(k).
WONG: David’s ideal retirement system is just a vision. But Chris Mahoney believes that such changes will have to be considered everywhere in the world, and not just in France, given the aging of our populations.
MAHONEY: The way we work, health care. For example, this has such a broad and far-reaching series of implications for societies.
WOOD: Darian Woods.
WONG: Wailin Wong, NPR News.
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