Age of majority, contribution period, special schemes… The glossary to understand everything about pensions

Age of majority, contribution period, special schemes… The glossary to understand everything about pensions

Since pensions are a topic that will dominate the debates over the next few days and weeks, an overview of the terms associated with them is necessary.

While pension reform will occupy the political media space for several weeks, CNEWS provides a very useful lexicon for understanding the terms and concepts associated with the debate.

PAYG system

First of all, you should know that the pension system in France is “pay as you go”. This means that part of the wages of the working people is taken from the assets to pay the pensions of the pensioners (which in turn were drawn while working). The government’s stated goal is to maintain this system by ensuring that enough contributions flow into the coffers to secure pensions.

In other countries there is another system, which is “by capitalization”. In this case, employees are not deducted from their salary, but save the money they want during their career to grow it through investments. After retirement, the accumulated amount is paid out in the form of an annuity (to a small extent on a regular basis) or a lump sum (all at once).

pension

The old-age pension is determined according to the retiring active worker’s contributory record, the level of earnings during his career and the scheme or schemes into which he has contributed (see below). For employees in the private sector, craftsmen and merchants, the average of the best 25 salary years is taken into account. In the case of civil servants, the salary for the last six months is taken as a basis (without supplements).

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Today the minimum pension is 75% of the net minimum wage. That’s about 1,015 euros per month. The government intends to raise it to €1,200 (85% of the minimum wage, including the extra ones), but debates over who will be affected (all retirees or just the new ones) are yet to come.

Minimum departure age (or legal departure age)

As the name suggests, the concept of minimum retirement age, also known as the statutory retirement age, is the point at which an employee can stop working. It is currently 62 years old in France and the government wants to increase it to 64 years.

Note that this is theory. You must have paid in long enough to be able to exit at that age and receive your full pension. Then another concept comes into play, that of actual starting age. It describes when the person can retire at full rate. Indeed, many people have not had the opportunity to contribute enough when they reach legal age. On average, the actual age is about 63 years (63.2 years for women, 62.7 years for men) according to social security data.

You should also know that France has set an automatic full retirement age at 67 years. He shouldn’t give in.

Increasing the employment rate of seniors is one of the key challenges of pension reform

contribution period and full amount

In order to receive a full pension, a French worker must complete the contribution period set by the government. At present, an employed person must have paid in between 166 quarters (i.e. 41.5 years) and 172 quarters (43 years) depending on their birth age. This cap of 43 years of contributions needs to be generalized for everyone by 2035, but the government should speed up the process without going any higher.

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Contrary to the maximum contribution period, which gives entitlement to a full pension, there is the possibility of leaving the world of work early by accepting the drawing of a lower pension. It is then said that the person “liquidates his rights”. A bonus is also possible if an employee has reached the maximum contribution period but continues to work.

early retirement

The system also allows certain workers to take early retirement without a discount. That means they can quit their job before they turn 62 (or 64). This is a person who started working before the age of 20 or has a disability, a disability. Anyone who has paid in at least 5 quarters before their 20th birthday can always retire two years before the others. An active person who has had a tough job (a concept the government needs to define) may benefit from a shorter contribution period.

Special systems, general system

Some people can take advantage of special plans that give them the opportunity to retire earlier. Civil servants (including military and police), SNCF, RATP, EDF-GDF, Paris Opera and the Comédie-Française or even clerks and employees of notaries are part of it. This would affect around 7% of workers.

Their schemes are generally more advantageous, with possible early retirement, shorter contribution periods, or better pension calculations. While these special regimes have been gradually modified to approximate the general one, the government wants them to continue to function for two more years.

The general system affects 88% of French employees, ie private sector employees, self-employed, artists or contract employees in the public sector.

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Basic, supplementary, additional system

Whether special schemes or general schemes, the contributions of French workers feed the basic scheme. The pensions of the pensioners are drawn from this.

At the same time, everyone has the right to subscribe to an additional plan. The aim is to make an additional contribution in order to receive a higher pension when you retire.

It is also possible that some workers choose to join a supplementary scheme that allows them to receive a pension that is higher than the pension received under the basic and supplementary schemes. This system can be imposed or proposed by a company. Retirement plans fall into this box.

system balance

As a bonus, a point on the concept of system balancing is essential, as the government is using this argument to justify its reform. After an exceptional surplus in 2021 and 2022, it should be in deficit again in 2023, with a loss of between 7.5 and 10 billion by 2027. By 2032, this deficit should reach between 12.5 and 20 billion, according to the latest Pension Orientation report Council (COR).

After eight different scenarios, four envisage a return to equilibrium between 2030 and 2050, and another four not before 2070 (date when forecasts stop). However, the CoR points out that if the deficit is to be sustained, it will never be uncontrolled. The decision on how to close this financial hole must therefore lie with the state. His will to push through the reform seems to be an answer.