Sustainability of the French first pillar pension scheme (CNAV): assessing automatic balance mechanisms

Frédéric Gannon (1) , Stéphane Hamayon (2) , Florence Legros (3) , Vincent Touzé (4)

1 EDEHN - Equipe d'Economie Le Havre Normandie
2 Harvest France
3 ICN Business School
4 OFCE - Observatoire français des conjonctures économiques (Sciences Po)

In this paper, we apply two types of automatic balance mechanism (ABM) to the French first pillar pension system for private sector employees (CNAV). One is based on a tax gap ratio (TGR-ABM) and the other is the smooth ABM (S-ABM) developed by Gannon, Legros and Touzé (2013). Two long-run forecast scenarios over the period 2014-2063 are analysed. The first is optimistic (“benchmark”) and assumes a 4.5% unemployment rate and a 1.5% productivity growth rate in the long run. The second is more pessimistic (“prudent”), with a 7.5% unemployment rate and a 1% productivity growth rate in the long run. For the benchmark (respectively prudent) scenario, a TGR-ABM requires, now and for the next 50 years, a 2.8% (respectively 6.3%) decrease in pensions and a 2.9% (respectively 6.7%) increase in the tax rate. An S-ABM requires, for the benchmark (respectively prudent) scenario, an immediate 1.5% (respectively 3.6%) decrease in pensions and a 1.4% (respectively 3.5%) increase in the tax rate. In the long run (50 years), an S-ABM requires a 4.5% (respectively 9.1%) reduction in pensions and a 4.5% (respectively 9.1%) increase in the tax rate.

Mots clés: Automatic balance mechanism; Pension scheme sustainability; French first pillar pension scheme

Domaines: Economies et finances; Sciences de l'Homme et Société; Économie et finance quantitative [q-fin]

Frédéric Gannon, Stéphane Hamayon, Florence Legros, Vincent Touzé. Sustainability of the French first pillar pension scheme (CNAV): assessing automatic balance mechanisms. Australian journal of actuarial practice, 2014. ⟨hal-02093458⟩