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Page last updated at 10:48 GMT, Wednesday, 16 June 2010 11:48 UK
E-mail this to a friend Printable version Plans to raise the retirement age have already sparked protests France's retirement age will be raised from 60 to 62 over the next eight years as part of sweeping pension reforms, the government has announced.
French labour minister Eric Woerth told reporters that working longer was "inevitable", and necessary to balance the public finances.
The move is designed to reduce France's pension costs and bring public borrowing down.
The move is likely to be met with stiff resistance from labour unions, however.
Demonstrations against raising the retirement age were seen even before the measure was formally announced, with more strikes and protests expected in the coming months.
But Mr Woerth said it was time for France to follow the lead of other European countries in addressing it deficit.
"All our European partners have done this by working longer. We cannot avoid joining this movement," he said.
France's growing budget deficit currently stands 7.5% of GDP - far above the 3% target set by the EU but much lower than some EU members including the UK, Greece, Portugal, Ireland and Spain.
Meanwhile the country's annual pension deficit is expected to total 32bn euros (Â£26.7bn; $39.5bn) this year, and could rise to as much as 114bn euros by 2050 without reform.
Under current rules, both men and women in France can retire at 60, providing they have paid social security contributions for 40.5 years. Meanwhile, public sector workers retire on 75% of their final salary.
As well as raising the retirement age to 62, the planned reforms will also require employees to work for a minimum of 41.5 years to qualify, and there will be higher taxes on the better paid.
Those who began working before the age of 18 would continue to retire at 60, however, and those with particularly "arduous" jobs may also be able to retire earlier.
The reforms were broadly welcomed by analysts, but several warned that further changes would be needed if France was to successfully balance its books.
Nicolas Sarkozy has prioritised bringing down France's budget deficit "What we have today is definitely not the last reform of the pension system," warned Gilles Moec, Europe economist at Deutsche Bank.
But opposition leaders condemned the proposals.
"This is the most unfair reform to have been decided by the president ... Nicolas Sarkozy has decided to make the poor pay," said Francois Hollande from the French Socialist Party.
The proposals must still be agreed by the French parliament in a vote in September.
They are likely to be fiercely resisted by labour unions and opposition parties before then.
Last month, widespread strike action in protest at the plans drew tens of thousands of workers to demonstrations in Paris.
The BBC's correspondent in Paris, Christian Fraser, said the govenrment was preparing for "a summer of industrial action".
But he pointed out that recent opinion polls had shown a majority of the French public were in favour of raising the retirement age.
EUROPE'S RETIREMENT AGES
France - 62
UK - 65 for men, 60 for women
Germany - 65
Spain - 65, though retirement at 60 is also common
Netherlands - 65
Italy - 65 for men, 60 for women, though earlier retirement is common
Greece - 65 for men, 62 for women, though earlier retirement is common
Sweden - 61
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France Raises Retirement Age, Ups Taxes
Wednesday, June 16, 2010 6:06 AM
PARIS- France's government announced on Wednesday it would raise the retirement age and increase taxes for top earners in a long-awaited reform aimed at balancing the heavily indebted pensions system by 2018.
Under the plan, which is likely to meet trade union resistance, the minimum retirement age will be lifted gradually to 62 in 2018 from 60, and levies on capital gains, stock options and other investment income will all shift higher.
"There is no magic trick when it comes to pensions," Labour Minister Eric Woerth told reporters, unveiling proposals drawn up after three months of consultations with sceptical unions.
"We cannot ignore the fact that the French population is ageing. We have to confront this fact. Our European partners have done this by working longer. We cannot avoid joining this movement," he said.
President Nicolas Sarkozy hopes the reform will convince investors he is serious about cleaning up state finances, which are set to register record deficit and debt levels in 2010, and enable France to cling to its prized AAA sovereign debt rating.
Even with the proposed change, France will still have one of the earliest legal retirement ages in the developed world. Germany plans to raise its retirement age to 67, while Britain and Italy are standardising at 65.
However, breaking through the psychological barrier was always going to be tough in France, where previous government attempts to implement meaningful change have often foundered in the face of nationwide street protest.
"These are still generous conditions compared to other European countries, but you have to take the French situation into account," said Laurent Bilke, chief European economist at Nomura in London.
"The government can come back in two or three years with another reform if it's needed."
The state pay-as-you-go pension system is forecast to register a 32-billion-euro ($39 billion) deficit in 2010, with this figure set to rise above 100 billion euros by 2050 on current trends, with an ageing population living ever longer.
Woerth said the government proposals meant pensions accounts would be balanced by 2018 and register a 100 million euro surplus in 2020. His forecast was based on the assumption the jobless rate would be 6.5 percent in 2018 -- a level not seen in France for many, many years.
Even if it succeeds in stemming pensions losses, the state still faces major problems with welfare spending, especially health expenditure, and the broader budget, which is forecast to register a deficit of 8 percent of GDP this year.
France's move is one of a number of reforms being rushed into place by European Union countries struggling to contain a debt crisis that has rocked markets. Spain was due to spell out crucial labour reforms later on Wednesday.
In a multi-pronged pension package, Woerth said people would have to work at least 41.5 years by 2020 to earn a full pension at 62, against 40.5 years now.
He also announced a wave of tax increases aimed primarily at the rich, raising 3.7 billion euros in extra revenue in 2018, including a one percent surcharge on the top income tax bracket.
"Those who have more resources than others should contribute more than others to financing pensions," Woerth said.
Unions have been urging the government to make up the pension shortfall with higher taxes on the wealthy, and the Wednesday's fiscal tightening went further than many expected.
In another attempt to forestall union anger, Woerth said those who began work before 18 would continue to retire at 60 and those with especially arduous jobs will continue to leave the workplace early if they can prove their medical case.
However, all this might not be enough to prevent a showdown, with France's main unions already planning a day of action on June 24 to protest against the reform drive.
Any street demonstrations would be unlikely to gain critical mass until September, when the reform goes to parliament for ratification. Unions shot down an ambitious pension reform in 1995 and have threatened a fresh revolt this time around.
"The aim is to succeed in September. That is when things are going to get the most heated,"
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