French President François Hollande has slashed France's pension age from 62 to 60 for those who commence their working life at 18 or 19.

The move is in sharp contrast to a move by Nicolas Sarkozy to hike the retirement age threshold. France claims the move is socially "just" and civilising. But is it affordable?


The good life

Hollande's decision will worry many that the move is unaffordable, especially as France is already struggling to make substantial public expenditure cuts. It's also a move in sharp contrast to all its near and not-so-near neighbours, Spain, Italy and Ireland.

So far the French Government is claiming the costs will come in at €1.1bn for the next year, paid for by a rise in payroll charges from both employers and employees. However this cost will rise to €3bn a year by 2017. At the same time, Hollande has to find around €100bn in savings in order bring down the budget deficit to zero by 2017.


To part-fund these changes, Hollande plans a a 75% tax rate on earnings more than £800,000 plus a rash of new wealth taxes on property assets. These sorts of rises may be easier - for some very wealthy French, at least - to digest.

Vive la différence

Some of France's wealthiest have urged the government to raise taxes on the rich, amongst them L'Oreal heiress Liliane Bettencourt, France's richest woman. But affluent middle class people will feel they have (much) more to lose.

"The reduction of the state pension age flies in the face of everyone else happening across Europe and the developed world," Laith Khalaf, Pensions Investment Manager at Hargreaves Lansdown told AOL Money.

"It's a pretty remarkable to expect to work till you're 60 and then enjoy 30 to 40 years of retirement. Spending around half your adult life in retirement is fine if you're saving when you're working. But it's costly to achieve that."

UK pensioners keep going

In contrast, the UK could see retirement ages rising to 73 for some now in their thirties and up to 77 for those completing their school A-Levels if plans to link state pensions to life expectancy go ahead (a report is due shortly).

Compared to French pensioners, that's close to 20 more years of work before full state pension eligibility. In reality, many French pensioners retire before they're 60, as the below OECD graph shows (2002-2007).

Meanwhile the EU has asked all members states to increase retirement ages because they're so concerned about the sustainability about the European pension situation.




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