28 November 2017
31 October 2017
23 October 2017
Posted on 12 May 2017
The last report from the COR (Pensions Advisory Council) was full of concern and bad news over the ongoing shortfall in funding the State pension schemes. This time, the message has changed. Solutions are just a click away. The COR has put online a simulator that enables you to salvage the pension system right from your own home! A fun tool, very informative but not completely reassuring.
The simulator allows you to choose between four different scenarios corresponding to annual growth in wages and salaries of between 1% and 1.8%, coupled with a level of unemployment of 7%. The basic assumption is that these “target” levels will be achieved in 2032 and remain stable up to 2070. Two additional variants are proposed, with unemployment rates at 10%, or 4.5% for the most optimistic of people.
In order to simplify using the simulator, the choice has been made of talking in terms of wages growth. The COR report, however, talks of growth in labour productivity. In both cases, what does this mean? It is an assessment of changes in the mass on which contributions are based. The COR has based its projections on stability in working hours and the distribution of wealth between capital and labour.
In the long run, given little growth in the working population, it is right to assume that the levels of wages growth contained in the different scenarios would roughly correlate with the expected levels of GDP growth. For example, the 1.5% scenario corresponds to a progression in GDP of 1.4% to 1.6% between 2021 and 2070.
Once the user has selected an economic scenario, the next step is to modulate the variables likely to correct imbalances in the system: retirement age, contributions and the ratio of pensions to wages. By adding a few months, after 2020, on to retirement age or half a percentage point to contributions, a balance can be achieved earlier on. This exercise is, of course, much easier to do on a simulator than in reality!
The default values correspond to current regulations. It is not surprising that between 2030 and 2070 the age at which one’s working life finishes will stabilise between 63 and 64; this corresponds to the forty-three years of contributions required for generations born after 1973. The average levels of contributions are expected to remain stable. On the other hand, the ratio of pensions to wages drops sharply in even the most optimistic of economic scenarios. In the event of a constant increase in wages of 1.8% per year, the ratio of pensions to wages would fall from 52% in 2017 to 34% in 2070. If wages growth were 1.5% then the decrease would be less: i.e. 37% in 2070. This is due to the fact that pensions are indexed on inflation whereas wages are linked to productivity. In addition, the simulator offers the possibility of biting further into pensions, thus increasing even more the gap between pensioners and people in work.
Now you know the rules, so over to you! What options would you go for? Prolong the duration for paying contributions and wage an industrial relations war, increase contribution rates and risk damaging companies’ competitiveness, or just carry on quietly chipping away at pensioners’ income? Rest assured. The simulator gives you the keys to altering the different variables, but does not require you to assume the consequences in the face of public opinion that is particularly sensitive on these issues.
Posted on 28 November 2017
The independent worker is a notion that covers a wide range of jobs. These include company managers, tradesmen and women, retailers, young entrepreneurs and the liberal professions. The one thing they have in common, in France, is that - contrary to 90% of the active population - they do not have employee status and so do not have such wide social insurance cover. Complementary - 2nd tier - solutions do exist with covers that are more and more adapted to the most varied situations and needs.
Non-salaried workers, just like employees, benefit from basic - 1st tier - healthcare cover. Just like employees, they are partially reimbursed for visits to the doctor, and practically on their own when it comes to optical or dental care. Whilst the widespread use of complementary healthcare plans means employees benefit from a minimum level of complementary cover, the same is not true for independent workers. They do have the possibility of taking out complementary insurance, with tax breaks, under the so-called Madelin Act. Products recently launched in this area respond much better to their needs in terms of flexibility and simplicity. For example, products selected by Gerep offer 6 or even 8 levels of cover as well as innovative services such as telemedicine consultations or various assistance services that enable them to safeguard what is the most precious for them - time and peace of mind.
Whereas complementary healthcare plans are gaining ground with independent workers, this is much less so for personal protection. Only 60% of independents have taken out such policies. Yet, the gap between employees and the others is much more acute for the major personal protection risks such as death, disability and work incapacity...and the consequences for them are much more serious. Several months sick leave generally puts an independent worker out of a job and poses a major threat to the survival of a small business. This is why insurers have designed options such as “key person” insurance which covers the company’s overheads if the person running the business is off work.
In order to attract independent workers, some insurers have placed their bets on simplicity: online proposals with immediate cover and medical questionnaires reduced to a minimum with just a few boxes to tick. However, if healthcare and personal protection plans are to remain simple over time, it is essential to make use of customised advice and reactive, quality policy management. Even more so, given that although the rumoured demise of the RSI system for independent workers will not affect complementary social insurances, it could bring about some changes in regulations that will need to be examined closely.