French Pension-Reform Plan Stirs Union Ire

PARIS—The French government said it plans to increase the retirement age, setting up a battle with unions who want the French to continue retiring earlier than most other Europeans.

The government said it plans to introduce a bill to raise the retirement age from the current minimum of 60—though it didn't say to what age—and create a new tax on high earners, to try to fix the nation's debt-choked pension system.

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Sipa Press

At a May 1 protest in Lille, in northern France, union members demonstrate against the government's planned pension reforms.

Unions have scheduled a nationwide demonstration on May 27 to protest the proposed overhaul.

The sparring comes as France and other European countries are under pressure to rein in their budget deficits after the Greek debt crisis caused financial chaos. France has the same high credit rating as Germany, but some economists are concerned that Paris could suffer a downgrade unless it demonstrates budget discipline.

"It's a litmus test," said economist Christian Saint-Etienne, head of the Générations Citoyennes think tank. "France's creditworthiness is at stake."

Facing the same trends of slow growth and longer lifespans, several European Union countries have in recent years increased their retirement ages and cut pension payments. In 2007, Germany opted to gradually increase its standard retirement age to 67 from 65. Last year, Italy pegged future retirement ages to rising life expectancy.

France has reduced some pension benefits in the past, but in its effort to avoid cutting monthly pension payments it has also piled up debt. If no changes are made, the annual deficit of state-run pension funds could shoot up to €103 billion ($127 billion) by 2050, from an estimated €10 billion this year, according to a council advising the government.

Concerned that the system isn't sustainable, the government of President Nicolas Sarkozy sent a memo to unions, which it released on Monday. The government said the main response to "demographic imbalances" should be demographic. That implies raising the retirement age and the number of years of contributions to the state-run system needed to receive a full pension.

"We can't accept that," said Eric Aubin, a national delegate with the CGT union. "People can't find jobs when they are 55. Increasing the retirement age will push them into poverty."

Details, notably the proposed new retirement age, would be outlined in June, the government said. A pension bill could be presented in Septermber to parliament, where Mr. Sarkozy's ruling UMP party has a majority.

The government ruled out some possible solutions, such as an increase in payroll taxes or the creation of a special sales tax, on the basis that they would hurt French corporate competitiveness.

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The government of President Nicolas Sarkozy, shown May 7 in Brussels, wants to raise the retirement age.

However, the Sarkozy government said it was considering slapping a new tax on wealthy households—something that might go against an election pledge by Mr. Sarkozy not to increase taxes and to provide some tax relief for the rich. Government officials said the new tax would be "symbolic" and yield between €2 billion and €3 billion a year.

Union leaders said they feared that without significant new tax contributions, the overhaul would result in lower pensions for workers who don't pay into the system long enough.

White-collar union CFE-CGC is one of the few unions to support the idea of raising the retirement age. But the union's national delegate in charge of pension issues, Danièle Karniewicz, said she will be able to convince members to back a pension overhaul only if the government finances it through other methods, such as a new sales tax. "The French are ready to make efforts," Ms. Karniewicz said. "But they need to know what they will get in return."