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Passes Law Overhauling Pensions as Opposition Crumbles
July 3, 2003
French lawmakers voted in favor
of a law shoring up the country's overburdened pension system by raising
the number of years people pay into the state funds and granting tax
breaks for private retirement plans.
The National Assembly, the
Paris-based lower house of parliament, passed the law by 389 votes to 132.
BNP Paribas SA, France's biggest bank, estimates that the law will
encourage private savings of more than $100 billion in the next decade.
Today's decision is a triumph
for Prime Minister Jean-Pierre Raffarin after he defied the hundreds of
thousands of voters who staged rallies and strikes in protest. He argued
that without change, falling birth rates and rising life expectancy
threatened to push state pension funds into deficit as early as 2005.
``The French reforms are a step
in the right direction,'' said Alan Pickering, chairman of the European
Federation for Retirement Provision, at a conference in London. ``Anyone
who faces up to the pension challenge should be commended.''
Raffarin's approval rating rose
for the first time in four months, an opinion poll by BVA Opinion showed
yesterday. The protests, which lasted more than five weeks, faded as they
became increasingly violent, discouraging many workers from taking part.
The new pension law increases
the number of years civil servants need to pay into the mandatory state
pension fund by 2 1/2 years to a total of 40 years to bring them into line
with those of private employees. The contribution period for everyone will
then be lifted in stages by another two years by 2020.
The bill, which needs the
approval of the upper house, also creates tax-deductible retirement plans
to which anyone can subscribe and turns an existing 10-year company
savings program into a retirement savings vehicle that pays out annuities.
BNP Paribas and Axa SA may be among the beneficiaries.
``It opens the door for people
to take responsibility for their retirement,'' said Emmanuel Ferry, an
economist at Paris- based stock-brokerage Exane. ``French people have
always been aware of the need to save for their retirement -- just look at
the savings rate.''
French savings rates this year
will be the fourth-highest as a proportion of households' disposable
income among 21 members of the Organization for Economic Cooperation and
Development after Italy, Belgium and Portugal, the Paris-based body
estimates. The 12 percent savings rate the OECD predicts for French
households this year is almost treble its estimate for Americans' savings.
Access to private pensions in
France has so far been limited to civil servants, the self-employed, such
as lawyers and doctors. Others have mainly used life insurance as a
Raffarin's conservative UMP
party has a majority in both houses of parliament. The bill, which now
goes to the Senate for approval before being returned to the National
Assembly for a final vote, will probably be adopted before the end of the
month, analysts predict.
Waning opposition on the street
weakened the resolve of opposition lawmakers. While the debate on the
first of the 81 articles in the pension bill took a whole week, the last
40 were rushed through in four days.
Opposition Communist and
Socialist parties alone had tabled 9,000 amendments in the lower house,
dragging the debate out to 3 1/2 weeks, the second longest since at least
1958. The final vote, which was initially planned for June 18, was twice
Today's vote has created an
important precedent for further economic change, economists said. The last
French leader to try to change the retirement benefits of state employees,
former Prime Minister Alain Juppe, shelved his plans after a three-week
transport strike paralyzed the economy in 1995.
The pensions system may need
further legal changes. By 2040, a third of the French population will be
drawing a pension, compared with one fifth now. The government estimates
that today's overhaul will plug only about half the expected financing gap
of about 80 billion euros.
``The pension problem isn't solved with Raffarin's reform,'' said Philippe Waechter, chief investment strategist at Banque Populaire Asset Management in Paris, which oversees $61 billion in stock and bond investments. ``They have a lot more work waiting for them.''