PARIS - Pension experts say the French government is "very likely" to introduce measures aimed at enticing more people into funded pensions this summer, despite a February speech by Prime Minister Jean-Pierre Raffarin that barely touched the issue.
Amid rowdy demonstrations and mindful that proposed pension reforms brought down the government of Alain Juppe in 1995, Mr. Raffarin told an audience in Paris that he would keep the generous pay-as-you-go system, but changes were needed.
Vincent Vandier, president of the French Pension Funds Association, Paris, said opposition by unions to major changes to the state pension meant the government very likely would focus on boosting incentives for individuals to pay into second- and third-pillar pension schemes.
"This is a very, very political issue. And it is like poker; you do not reveal your hand. We don't know what exactly will come out when they announce reforms this summer. They will consult with industry and social partners until then," Mr. Vandier said.
Banks and insurers
Local banks and insurers dominate France's money management business at the moment, but the main foreign-owned firms that stand to gain out of any reform that favors private provision include Merrill Lynch Investment Managers, London, and Commerzbank Asset Management, Frankfurt.
Merrill Lynch manages slightly more than $700 million in segregated mandates from French pension schemes, while Commerzbank runs about $600 million.
Despite the mystery surrounding what Mr. Raffarin will propose later this year, pension analysts remain positive.
"We think it will be a long time coming, but we will see more people going into private pensions and occupational pensions," said Jean-Francois Milville, a consultant with Aon Consulting in Paris.
Mr. Raffarin, aware that French individuals are skeptical of so-called "Anglo-Saxon/American" private pensions, pointed to Sweden's third-pillar system as a possible model of French reform.
He said that country's reformed pay-as-you-go system, in which 16% of salary is contributed to a hybrid notional account, would keep the characteristics of the current system but relieve much of the burden from public finances.
The Swedish system is backed by buffer funds known as the Almanna Pensionsfonden, or AP funds.
"I am quite positive (about the reform process). Nothing came out (of Mr. Raffarin's speech) that is a solid proposal, but we are still positive," said Mr. Vandier.
Other analysts agreed the government is setting the scene to make further cuts in the state pension, including possibly raising contributions amounts and the number of contribution years needed for a full pension, or moving to a career-average benefit assessment period.
A key point the prime minister barely touched upon was the role of private and occupational pensions. Currently, they amount to slightly more than 10% of all pensions in France. Few companies operate occupational schemes because of complex red tape and hideous expenses associated with establishing the plans.
"They also don't really need them, the pay-as-you-go system is very good," said Michel Piermay, president of actuarial and investment consulting firm Fixage, Paris.
But experts now say the government is going to look to the second and third pillars to bail out the country.
"I think there will be tax breaks for private pensions. At the moment, there officially are no pension funds in France, but that will change this year," said Mr. Vandier.
The details of Mr. Raffarin's speech were sketchy, and neither he nor his aides were willing to comment on the negotiations process.
Unions officially remain opposed to any radical reform.
"But there is a difference between what is happening now and what happened in 1995," Mr. Vandier said. "Back then, nobody in the public and in the unions and social partners saw the need for change. But that is different now, everybody knows there must be change. Everybody knows France cannot afford the (pay-as-you-go) system in the future."
Mr. Raffarin made that clear in his speech. He said demographic forces will open a e50 billion gap in the financing of the state pension system by 2020; that deficit would increase to e100 billion by 2040, he said.
"To cover (that deficit) we'd need to double the income tax by 2020, and double value-added taxes.