PARIS - France is moving toward adoption of a private pension system. But what form it ultimately will take is the subject of intense discussions and debate among French employers, unions, banks and insurers.
In October, Economics Minister Edmond Alphandery announced the French government intended to introduce legislation in the National Assembly this spring to create a privately funded system to augment its pressured pay-as-you-go state systems. That date now has slipped to this fall, subjecting it to possible further delay because of its proximity to the spring 1995 presidential elections.
But Mr. Alphandery's announcement opened up a widespread debate on how the new pension system should be structured. Most experts believe the system will lean toward a defined contribution structure.
"There's a lot of struggle going on and it's not clear how it's going to end up," said Emmanual Reynaud, a researcher with Institut de Recherches Economiques et Sociales, Noisy le Grand.
Unlike in earlier years, there appears little question a new private system is needed. "The main problem is to reduce little by little this level (of benefits) which is too heavy for our economy," said Arnaud d'Yvoire, secretary general of L'Observatoire de Retraites, a Paris research group on retirement issues.
A 1991 government white paper warned the ratio of active employees to retirees would shrink to 1.5 to 1 by 2050 from more than 3 to 1 in 1980. Maintaining the present level of benefits in real terms would require increasing contributions by 50% to 60% by 2040.
In addition, experts note the government hopes to create a private source of capital to boost the French stock market and the government's privatization efforts.
The key issue will be to what extent the Finance Ministry allows tax deductions for pension contributions. "With a soaring budget deficit, there's no incentive to provide additional tax breaks," explained Herve de Lattre, international development manager for Fimagest, a Paris money manager.
Savings goals likely will be modest. The Wyatt Co. estimates current French private external funding of retirement plans at 100 billion francs ($16.9 billion), or about 1.5% of gross domestic product. A commonly cited goal would be to boost pension reserves to 3% of GDP - just doubling the current level, but still well below the 45% to 80% levels attained in other Western economies.
Other issues are dividing experts. Insurance companies and others want the new system to make payouts only in the form of annuities. "There's no question that pension funds must provide pensioners with a pension," said Bernard Cocheme, director of retirement for the giant money manager Caisse des Depots et Consignations, Paris.
But bankers want participants to receive a choice between annuities and lump-sum payments. Lump sums are more attractive to younger participants, the more affluent, and those worried about transferring their wealth to their children, said Robert de Bruin, communications manager for the French Bankers Association, Paris.
Meanwhile, Conseil National du Patronat Francais, Paris, representing chief executives, wants employers to be able to have a choice of tax-deductible funding through external managers or through book reserving. With book reserving, employers could keep funds integrated with company coffers, allowing for greater internal investment.
Pension experts, however, worry a book reserve system does not provide adequate protection for plan participants. One solution would be to create a guarantee fund, with premiums paid by large employers, that would be reinsured for excess risk. Also, the amount of reserves would have to be audited, said Agnes Lepinay, director of financial affairs for CNPF.
An attempt to reconcile these issues was unveiled recently by Jacques Barrot, chairman of the National Assembly's finance committee. Under his proposal, employers would be required to invest at least 30% of their contributions into their own companies. But Mr. Barrot would permit benefits to be distributed in annuities only.
The amount of money available for private pension systems also will hinge on how much employers and employees are required to contribute to the state pension system and existing supplementary pension systems.
These mandatory systems gobble up hefty contributions: for a salary of 300,000 francs a year ($50,700), contributions for retirement, medical, disability, unemployment and other state benefits total 28% for the employers and 14% for the employee.
In addition, minimum contributions to ARRCO, the supplemental system covering blue-collar employees, are 3% for employees and 2% for employees based on certain earnings caps. Contributions to AGIRC, covering professional and managerial employees, are 9.36% for employers and 4.68% on earnings between 149,820 francs and 599,280 francs, and a minimum rate of 9.36% combined on earnings between 599,280 francs and 1,198,560 francs.
It may take some time before pension reform reaches the front of the agenda, experts said. "For the moment, pensions is not the big thing here, it is unemployment," said Mr. de Bruin.