February 7, 2023
SEOUL – French President Emmanuel Macron’s recent proposal to raise the retirement age from 62 to 64 is believed to be the optimal solution to tackle the country’s soon-to-run-out public pension reserves, French economist Philippe Aghion said during an interview with The Korea Herald on Jan. 24.
“The best way to deal with the pension deficit is to increase how much time you spend in life working, and that’s what the reform (in France) intends to do – increase the number of years at work to get to equilibrium and balance the system by 2030,” Aghion said.
Aghion is currently a professor at the College de France, INSEAD, and the London School of Economics. He also worked as a professor of economics at Harvard University.
The economist believes that pushing up the retirement age can not only solve the sustainability problem of the pension system, but also boost the employment rate, which he says is extremely crucial for the economy as a whole.
“This pension reform is another way to increase the employment rate. We have to look at this pension reform as part of the broader strategy to increase the employment rate in France,” he said. “If you increase the employment rate, it’s very good from a macroeconomic point of view as it will increase GDP.”
The professor argued that once the employment rate rises, it will establish grounds for the government to put money into important sectors of society such as education, health, and innovation.
Nonetheless, the pension reform package pushed by French President Macron, which includes an increase of the retirement age, has faced strong public backlash.
Several unions are demanding the French government to find other ways to finance the state pension such as taxing the wealthy or increasing employer payroll contributions.
Over a million French people marched out on the streets to protest in January, which led to the disruption of public transport and schools, as well as clashes between demonstrators and police.
The French government’s predicament is relevant to Korea, which also has to reform its pension system sooner than later.
According to a budget committee of the pension service on Friday, the Korean pension fund service is also projected to see a deficit from 2041 onward and run out in 2055.
Both Korea and France also face a similar problem of having a gap between the age that people become pensioners and the actual age that people are dismissed from companies.
“They want to increase the retirement age up to 64, but most of the people are dismissed by their enterprise at the age of 55. So what will they do between 55 and 64?” Aghion said.
According to Mirae Asset Investment and the Pension Center’s research last year, the average age that Koreans retired from their “main job” — the job they’ve worked at the longest — was only 49.3 for those aged between 55 to 64.
The French professor sees that this gap can be covered by providing more employment opportunities to elders, adding that this issue is also one of the main reasons that people strongly oppose President Emmanuel Macron’s reform in France.
“(Macron’s pension reform) is perceived as unfair because the whole burden (from this gap) was put on employees, and not on employers,” he said.
To provide more jobs for seniors, he suggests that the government provide strong incentives to firms that employ seniors and apply disincentives like taxation for firms that do not.
Adding to this, the French professor said hierarchical corporate culture is also a problem.
“The relationship between superior and subordinate in France tends to be very tense– not a nice one. And that is why people are so eager to retire as early as they can, because they’re not happy at work,” he said.
Aghion also talked about the shortcomings of other pension reform options, such as increasing people’s contributions or reducing the amount that pensioners receive.
“We could increase contributions to the pension system, but that would lower the purchasing power of the citizens and be recessive on the economy. Another possibility would be to reduce the pensions (provided), but that too would reduce consumption and have a recessive effect,” he said.