How the French Lose 1,720 Euros in Pension Benefits Each Year
The underdevelopment of retirement savings in France is said to cost each employee and retiree 1,720 euros per year! To quantify this loss, the very liberal Molinari Economic Institute ran the numbers.
Retirement savings accounted for only 10% of GDP in France during the 2012–2021 period. The shortfall in retirement savings amounted to 74% of GDP in France. When comparing France with the three EU countries that have placed the greatest emphasis on retirement savings (Denmark, the Netherlands, and Sweden), the retirement savings shortfall in France stood at 147% of GDP. This translates to an annual shortfall linked to the underdevelopment of retirement savings of 3,410 euros per worker and retiree in France (17% of the average pension). Overall, this amounts to 159 billion euros per year in France (6.4% of GDP annually).
According to the findings, the annual shortfall resulting from underdeveloped retirement savings amounts to 80 billion per year, which represents 1,720 euros per worker and retiree in France. For the average retiree, this shortfall is equivalent to 9% of the pension in France and 7% in the EU.
To reach these conclusions, the institute assumes that retirement savings yielded an average of 4.3% per year above inflation, thanks to dividends and capital gains over the 2012–2021 period.
This return made it possible to self-finance a portion of pensions without relying on compulsory taxes, which improved the competitiveness and purchasing power of countries with a significant amount of retirement savings.
And to drive the point home, the experts at Molinari cite as an example the few mandatory group pension plans that use a funded system.
The Civil Service Supplementary Pension Fund (ERAFP) has invested 38 billion euros (as of the end of 2022) on behalf of civil servants. Managed jointly by civil servant unions and employer representatives, it has generated an annual return of 3.7% since its creation.
The Bank of France has invested 13 billion euros (as of the end of 2022) for the benefit of its employees and retirees, enabling it to self-finance a significant portion of pensions without relying on taxpayers and to periodically return substantial surpluses to the government (1.8 billion euros in 2021 and 2022);
The Senate has set aside 1.6 billion euros (as of the end of 2022) for its staff, elected officials, and retirees, enabling it to self-finance 55% of the pensions it pays without relying on taxpayers—a savings of 13% of its operating expenses each year;
The Pharmacists’ Old-Age Insurance Fund (CAVP) has invested 6 billion euros (as of the end of 2022) for the benefit of pharmacists, enabling it to provide attractive pensions despite the highly unfavorable age distribution within this regulated profession.
The study’s conclusion is therefore clear. The near-exclusive funding of pensions through pay-as-you-go systems increases labor costs and reduces net wages (pension contributions account for 28% of private-sector wages and 85% of the index-linked salaries of civil servants). This penalizes the private sector but also undermines the value for money of public services. In particular, employer pension contributions consumed one-third of the National Education system’s resources in 2022. These are funds that are not available to provide better pay for staff.
According to Molinari, if France had a funded pension system as developed as the OECD average, it would benefit from a windfall of 80 billion euros per year from investment income (dividends, interest, capital gains, etc.). In particular, it could reduce its public deficits (€127 billion in 2022), better fund social policies (such as long-term care), the climate transition (€25 to 34 billion per year by 2030, according to the Pisany-Ferry report), and the essential revival of nuclear power (€52 billion for six EPR reactors).
