Olivier Faure, first secretary of the Socialist Party, has just proposed drawing from the Retirement Reserve Fund (FRR) to finance the pause on pension reform. This project demonstrates a headlong rush. Instead of emptying reserves, we must strengthen them. And for those who are committed to the recovery of public finances, the objective would even consist of making the FRR a sovereign fund dedicated to civil servants’ pensions.
The FRR is a creation of Lionel Jospin. At the beginning of the 2000s, Prime Minister François Mitterrand wanted to guarantee the sustainability of pay-as-you-go pensions by creating significant reserves, with an “object” investing in the markets to face future imbalances. A good idea. But its implementation was chaotic.
As Eric Lombard pointed out when he was boss of the Caisse des Dépôts, before becoming Minister of the Economy, successive governments have not resisted the temptation to draw on this fund. Results: the reserves placed never reached the planned level. Today they represent barely twenty billion euros, while Lionel Jospin was counting on seven times more. From a financial point of view, this constitutes a waste, with a shortfall for the taxpayer amounting to tens of billions of euros.
Since 2011, the FRR has brought in 13 billion euros in earnings, despite its small size. If it had been powered as initially planned, it would have brought in 76 billion euros to the community, or six times more, according to the latest study by the Molinari Institute. The hot topic of pensions would therefore be less problematic.
Strengthen the Pension Reserve Fund
That Olivier Faure is proposing to empty this war chest set up by one of his predecessors at the head of the Socialist Party demonstrates a strong degree of incomprehension. These reserves are insufficient and the priority should be to consolidate them because in all well-managed pension plans – whether Agirc-Arrco or the liberal professions – they have shown their usefulness. And when the State periodically seeks to seize it, the social partners step up to the plate to dissuade it. This is also what was lacking in the Reserve Fund for Pensions: real protection, with actors defending long-term collective interests against the short-term appetites of the State.
A real way to protect the FRR would be to make it a sovereign fund dedicated to civil servants’ pensions. This would ultimately allow the State to save around sixty billion euros per year. We often forget it, but the State manages the pensions of its agents without respecting the rules imposed on traditional employers. However, its retirement expenses have tripled in more than forty years. They represent 62 billion euros in 2023, compared to the equivalent of 20 billion today in 1977. The explosion of this expenditure explains a significant part of the structural public deficit and the deterioration of the public service provided to taxpayers. The State has not provided anything, has not placed any capital to self-finance the pensions it pays to its former employees. By way of illustration, if the State had provisioned part of the pensions of its civil servants, as the Senate does, it would have saved 35 billion euros in 2023. Better still, it would have made 60 billion in savings if it had provisioned all the pensions of its staff, as the Bank of France does for the pensions of its agents.
Rather than permanently emptying the Pension Reserve Fund, it should therefore be strengthened, even if it means financing this investment through debt, like the projects of our German or Spanish neighbors. If the FRR were entrusted with provisioning state civil service pensions, an increase in power over around forty years, with 1% of GDP invested per year, would make it possible to create a sovereign fund representing 90% of GDP. By 2070, the interest generated would make it possible to finance the entire pensions paid by the State to its staff and the interest expense linked to the increase in power of the fund. Incidentally, we would have a sovereign fund, part of which would be invested in France and Europe, areas where innovation and growth are lagging behind, due to a lack of long-term financing. If we want to preserve our pensions, we must agree to invest, which should also reassure the financial markets, worried about France’s inability to correct its structural shortcomings.
* Nicolas Marques is general director of the Molinari Economic Institute