Why France’s Pension Protest Is Deja Vu of India’s OPS Vs NPS Debate?

France has its own system that goes back to the time of Second world war introduced by the national Resistance Council when the country was reeling from the aftermath of the war. The retirement system in the country is cherished by generations especially because it is seen as hard-earned. 

Should 60 be the age of retirement? As an individual who is in their 50s, would you want to retire at 60? I’m asking this question because this is intricately linked to the questions of pensions. Recently, India saw protests by govt employees over bringing back old pension Scheme i.e. OPS.

Earlier, in states like Himachal pradesh and Rajasthan both ruled by Congress, OPS has returned. In Himachal Pradesh in fact that was the turning point for the party. Recently, maharashtra also witnessed protests by employee unions asking the system returns to OPS.

The protest was called off after the assurances from the govt. But do you that India isn’t the only country where Pension has become such a contentious matter. Even France is witnessing strikes and protests on massive scales, sometimes violent, over pension. French president Emmaanual Macron although survived a no-confidence vote, is facing the heat over his pension reforms.

So why has pension become such a contentious point? Why France’s pension reform led to protests? and what it says about Pension schemes in India?  Let’s go through it.
First, a pension is a fixed sum that an employee gets at certain interval after his/her retirement. There are investment based pensions too but for these video, we are dealing with employment based pension.
Pension is sort of a social security. After attaining a particular age when a person can no longer dedicate as much energy and force in work, when they become elderly they need support. Pension is a social security in monetary form. A way of the state/govt giving back to the employee for the years of service they put in.  Each country has its own policy on pension.
France has its own system that goes back to the time of Second world war introduced by the national Resistance Council when the country was reeling from the aftermath of the war. The retirement system in the country is cherished by generations especially because it is seen as hard-earned.
And that’s why the New pension Reform brought by Emmanual Macron has been met with strong protest. Especially the blue collared workers of the country have been raising their voice against this pension reform. Many of them have gone on a strike. In cities like Paris, the garbage is piling up, garbage bags were seen strewn on roads, as the workers went on strike. Violence was also reported in several regions, against the govt’s plan.
Before coming to the reform plan that has caused so much fury to workers, let’s understand how France’s existing pension system works? 

In France, all retirees get a state pension. mandatory payroll taxes are paid by those currently working. These taxes paid by the working population funds the pensions of retirees. Which means the younger generation of those in the workforce bear the cost of assured pension to the older generation. This is also state backed scheme, which means that generations can retire with an assured sum of money. French politicians also laud the system for creating “solidarity between the generations”.

However, there’s a problem.While the life expectancy in the country has increased, so has its aging population. This means more people retiring every year that those entering workforce. If this trend continues the govt believes the current pension system will fall short in the coming decades. According to the administration’s projections, while there were 2.1 workers putting money into the system for every one retiree in 2000, this figure dropped to 1.7 workers per retiree in 2020, and is expected to further slide to 1.2 by 2070.

What does the Pension Reform Plan propose?

The pension reform has always been on the agenda of Emmanual Macron. it was also included in his presidential campaign. As per the pension reform, the french govt plans to gradually raise the age of retirement. Currently, retirement age in France is 62, minimum among all european nations, the reform proposes to take it to 64. In the old system, the workers had to complete 42 years of working to get full pension, now it has been increased to 43. According to the new plan the retirement age will be raised by three months every year till 2030.

There are certain exceptions. Those who started working between the ages of 14 to 19 will be able to seek early retirement, as will public workers engaged in physically or mentally arduous jobs. The government also says it will put in place a ‘seniors’ index’ to check if companies are making progress in hiring and training seniors so that they don’t get left out as the retirement age increases.

The reform will also put an end to a dozen or so “special regimes” with different retirement ages and benefits for different categories of workers including rail workers, electricity and gas workers, and central bank staff. However, the changes will only apply to new workers in these sectors—existing workers will still benefit from the special regimes. But say if you are a mother who has taken significant time off work to raise a child or a person who has taken off work for long study, you will have to complete the set number of 43 years of work to avail pension benefit. which means working till 67 even.

So why is it facing such strong opposition? 

As I said the france’s pension system is such where the younger working generation pays for the pension of older generation. Generations of workers have accepted high mandatory taxes to fund the pension system because it creates interdependence and guarantees state-backed pension earnings. The new system means current workers will have to work longer to sustain pensions for the ever increasing aged population. This at a time when Life expectancy has touched 82 as per 2020 World Bank figures.

Some have also flagged that the reform will negatively affect blue-collar workers who often start working young, have shorter life expectancies, or have less optimum working conditions compared to white-collar workers.
Opponents of the reform argue that the government could have found alternate measures— like increasing payroll taxes paid by workers, taxing the wealthy more, or not tying pensions to inflation.
Others also argue that  Macron’s government is just amplifying the danger of the system’s projected deficit. Well, this is not the first time that France is facing protest over pension reform. Large scale protest also rocked paris in 1995 and 2010.
Even in 2019, macron govt wanted to bring Pension reform, a beta version of the current reform but that was met with great resistance. The transport services workers staged one of the biggest walkout bringing it to halt. But later because of pandemic, the reforms were stalled.

What fuelled the violent protest was the way the pension reform bill was passed through the french national assembly without a vote. In a last minute announcement, the French president decided to use special provision 49:3 of the Constitution to pass the bill without voting in the National Assembly.

The opposition reacted with strong protest inside the national assembly but also moved two no-confidence motions against Macron. Both motions did not get enough numbers to be passed and thus, macron sailed through the storm. But the protests continue.

Does It have similarities to India’s OPS vs NPS Debate?
Well, the answer is yes. The France’s pension debate does look a repeat of India’s Pension debate. In India many states have returned to Old Pension System espoecially those ruled by opposition but the RBI has warned against it. In the OPS, there is a fixed formula for pension.
50% of last drawn salary of the employee is given as a pension. This is also adjusted to inflation. Which means it gets revised, as inflation increases. As per the Old pension scheme, this pension was fully backed by the state. there was no specific provisional fund which was only meant for the pension. That means the current working population of India bore the burden of pensions for the retirees. This system was stopped in 2004 by Atal Bihari Vajpayee led BJP govt. and subsequently NPS- National Pension scheme was introduced.
Under this a certain amount is deducted from the employees’ salary during his working years. Employee contributes 10% of his salary and dearness allowance while the govt contributes 14%.
This money is used to pay for his own pension after he retires at fixed sum. Much like how insurance companies design their pension scheme. The only difference is investment- premium is replaced by salary deduction.
As states started going back to OPS, RBI has warned that this is not advisable considering it will put more burden on state exchequer. A staggering data comes from CMIE that reveals that the share of pension spending in state revenue has been steadily increasing. It was less than 10% at the beginning of the reform period and had increased to more than 25% by 2020–21.
According to SBI’s 2022 Ecowrap, if all states switch back to OPS, the Pension liabilities of all states will be in the brackt of 31 Lakh Crore.
Well, two reasons why France and India’s Pension debates are similar because both Pension Reform and NPS talk about sustainability of the pension scheme and the increased life expectancy and more aging population. One of the criticism of NPS is also that major chunk of money allocated goes to handful of people.

there’s one interesting figure as far as India’s NPS is considered. In 2022, government revealed that 83% of NPS subscribers who have reached the age of 60 choose to continue investing beyond maturity. Instead of opting to receive the pension and withdraw part of the NPS corpus, subscribers are extending the accumulation phase well into retirement. The pension vehicle currently allows subscribers to invest up to the age of 75. However, state govt employees say that the pension pay under NPS is meagre and not enough to sustain them.

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