The Socialist Party is advocating for a halt in pension reform, estimating costs of 2 to 3 billion euros in 2025, which they plan to fund using the Pension Reserve Fund (FRR). Established in 1999 to create reserves for future pensions, the FRR has shifted focus to cover Social Security deficits since 2010. While it currently has about 20 billion euros, concerns arise about its long-term sustainability to finance the suspension and the potential financial impact of delaying the retirement age increase.
Exploring the Financing of Pension Reform Suspension
Is there a potential financial windfall on the horizon? The Socialist Party is advocating for a pause in the pension reform, proposing a non-censorship deal with the government. However, this raises the crucial question of how to fund such a move. Patrick Kanner, the leader of Socialist senators, acknowledged on Franceinfo that this suspension would incur costs ranging from 2 to 3 billion euros in 2025. Fortunately, the Socialist Party has a plan in place: they propose tapping into the Pension Reserve Fund (FRR) to cover these expenses. Olivier Faure, the first secretary of the PS, confirmed on TF1 that this could facilitate a shift to a new system.
The Origins and Evolution of the Pension Reserve Fund
The Socialist Party highlights that the FRR was established in 1999 during Lionel Jospin’s tenure as Prime Minister, aimed at creating financial reserves of approximately 1000 billion francs (or 150 billion euros) by 2020 to prepare for the retirement of the baby boomer generation. A Senate report from 2021 pointed out that these reserves were intended to maintain the financial stability of the general social security scheme between 2020 and 2040.
However, the fund’s purpose underwent a significant transformation in 2010 under Nicolas Sarkozy’s administration, primarily due to the urgent funding needs arising from the 2008 economic crisis. Instead of focusing on future reserves, the FRR began covering accumulated deficits in Social Security. From 2011 to 2024, the fund contributed 2.1 billion euros annually to the Social Debt Amortization Fund (Cades), and a 2020 law extended this commitment to 1.45 billion euros from 2025 to 2033, contingent on the fund’s reserves. This shift has drawn criticism from the Court of Auditors, which suggested either dissolving the fund or redefining its roles and objectives in a 2022 report.
Patrick Kanner emphasized the potential to utilize the Reserve Fund’s resources in times of need, a point supported by a report from Social Security. It stated that the fund’s assets could be mobilized in response to significant financial deviations within the old-age branch accounts. The pension monitoring committee is equipped to recommend transferring funds as necessary, provided that specific provisions are included in the social security financing law.
But is the FRR sufficient to finance the temporary suspension of the 2023 pension reform, which notably proposes raising the retirement age to 64? Kanner reported that the fund currently has at least 20 billion euros available. According to the Social Security report, the market value of the FRR’s portfolio was approximately 19.7 billion euros as of June 2024, with a projected net asset of around 7 billion euros by 2033 after accounting for planned contributions to Cades.
In the short term, the FRR appears capable of supporting a suspension of the pension reform, which the Socialists interpret as delaying the 64-year retirement age by six months, costing between 2 and 3 billion euros. However, an impact study from January 2023 projects that the reform’s financial yield, primarily from raising the retirement age and extending the contribution period, could reach 5.3 billion euros by 2025. In the medium term, the FRR’s resources may fall short, with an estimated yield of 17.7 billion euros expected by 2030, signaling a departure from its original purpose.