"The State must rethink the financing of civil servants' pensions"

Nicolas Marques is a doctor in economics and director general of the Molinari Economic Institute, a liberal think-tank.

In his speech of December 15, 2021, the President of the Republic explained that “we must move towards a simplified system” with “roughly three major regimes” for the public service, employees and the self-employed. A proposal which, we hope, marks a step towards pragmatism. We would have far fewer problems if the state were content to be a responsible employer and, incidentally, a wise pension regulator.

One of the shortcomings of the abandoned pension reform was to propose a clean slate approach while obscuring the basic subject, namely how to finance the pensions of civil servants. Generating fears, this reform unfortunately removed everything that works well in France, from well-managed joint or professional funds (Agirc-Arrco, CAVP, etc.) to collective capitalization (ERAFP, Banque de France, Senate, etc.).

We have the particularity of having a State which has given up thinking about the effective financing of public pensions for a century and a half. This is what explains a significant part of the public deficits since the countershock of the baby boom. As early as 1853, the state dismantled the civil servants' pension funds, organized department by department, on the grounds that some of them were in deficit. Contrary to any foresight, he recovered their capital and got into the bad habit of paying pensions from the budget, without putting money aside. One of the Ministers of Finance of the Third Republic said that

. Pierre Mathieu-Bodet,

(Hachette, 1881).

Since then, our State has continued not to make any reserves, when it was obvious that demographics were going to cause its pension expenditure to explode.

Nicholas Marks

This was well before the establishment of the distribution, initiated in 1941 and generalized at the Liberation. Since then, our State has continued not to make any reserves, when it was obvious that demographics were going to cause its pension expenditure to explode. Conversely, all private law responsible pay-as-you-go schemes, such as Agirc-Arrco or CAVP for pharmacists, have begun to invest capital in view of foreseeable changes. The responsible states, such as Quebec, have done the same. The Quebec government began to place the pension contributions of its employees in the 1990s, to make them grow and to be able to pay pensions without blowing up compulsory deductions. At this point, theState in Quebec has set aside enough to honor 85% of the amounts due to current and future retirees in its Retirement Plans Sinking Fund (FARR), while supporting the province's economic development. In France, the State has done almost nothing and the assets of the Pension Reserve Fund (FRR) represent barely 2% of the promises made by the State to its personnel. Balance sheet; State pensions mobilized 58 billion last year, almost as much as the net salaries of civil servants (62 billion). The money mobilized improvidently in pensions is lacking elsewhere.has done almost nothing and the assets of the Pension Reserve Fund (FRR) represent barely 2% of the promises made by the State to its personnel. Balance sheet; State pensions mobilized 58 billion last year, almost as much as the net salaries of civil servants (62 billion). The money mobilized improvidently in pensions is lacking elsewhere.has done almost nothing and the assets of the Pension Reserve Fund (FRR) represent barely 2% of the promises made by the State to its personnel. Balance sheet; State pensions mobilized 58 billion last year, almost as much as the net salaries of civil servants (62 billion). The money mobilized improvidently in pensions is lacking elsewhere.

Common sense would be for the state to put its affairs in order, instead of seeking to regulate private pensions, which are much better managed.

Nicholas Marks

Common sense would be for the state to put its affairs in order, instead of seeking to regulate private pensions, which are much better managed. The priority is not to overhaul the pensions of employees or those of the liberal professions. History has shown that they overcome difficulties, with governance mechanisms that allow them to make responsible decisions, whether it is a question of building up reserves, adopting point systems or bringing regimes closer together. The fundamental project concerns the pensions that the State distributes as an employer. They are the source of financial excesses, a consequence of the lack of rigor of a state that has been unable to manage the long term until now.

Common sense militates for the State to start funding the pensions it promises to the staff it recruits. This approach will be particularly profitable since the State issues debt at low rates, while the return on long-term investments is significant. As proof, the Pension Reserve Fund has created 12 billion in value for the taxpayer over the last ten years. Instead of emptying it, it must be increased in power to provide for the pensions that the State promises to the civil servants it hires. In addition, the Public Service Additional Pension Establishment (ERAFP) should be stepped up. This pension fund, co-managed by representatives of staff and public employers, is a success,as evidenced by its performance since 2006 (5.4% per year).

It [the role of the State] is, as an employer, to manage its pensions in a way that saves taxpayers and, as a regulator, to ensure that the other actors do the same.

Nicholas Marks

With regard to employees, common sense would be to consolidate what already exists around Agirc-Arrco, by entrusting it with the management of collective capitalization on the model of ERAFP, as we are proposing with CroissancePlus.

With regard to the pension funds of the liberal professions, some of which are very well managed, the role of the State is to check that they are equipped with mechanisms guaranteeing the balance and the constitution of reserves, in the image of what did the pharmacists with the CAVP.

The role of the state is not to do mechanics between regimes.

It is, as an employer, to manage its pensions in a way that saves taxpayers and, as a regulator, to ensure that the other players do the same.