Twenty years of pension reforms: what was the contribution of the indexation rules?

Anthony Marino, division Redistribution et politiques sociales, Insee

Since the late 1980s, the method of calculating pension rights has seen many changes designed to limit the increase in pension expenditure as a share of GDP. If we had kept all the rules that existed until the mid-1980s, this percentage would have risen to almost 21 percentage points in GDP in 2060, according to simulations using the Insee Destiny 2 model. With all the changes made since, lasting as far as the 2014 reform and the latest Agirc-Arrco agreements, this percentage would be limited to about 14 points, using the assumption of an annual increase in productivity of 1.3% in the medium and long term. Among the factors of this moderation, indexing rules play a major role. Since the late 1980s, the price index has been used to assess the payment of pensions in the private sector, as well as wages said to be “recorded in the accounts”, those on which liquidation is based. This principle was confirmed by the 1993 law. The 2003 law extended the indexation method to prices for civil service pensions. The changes in the indexation rules helped contain a significant increase in pensions but this varies with the level of economic growth. Depending on whether productivity gains rise by 1% or 2% respectively per year (hypotheses made by the Pensions Advisory Council), simulations carried out using Destiny 2 show that this effect will vary from 3.6 to 6 GDP points by 2060. Pension reforms have thus made the long-term level in the ratio between pensions/GDP quite sensitive to macroeconomic assumptions. With the rules as they are announced today, the weight of pensions in GDP will range between 12 and 15% in 2060, between the high and low growth assumptions adopted by the Pensions Advisory Council.

Insee Analyses
No 17
Paru le : 15/04/2014