UPDATE 2-France lifts retirement age to balance pension books

* France looks to lift retirement age to 62 from 60

* Government plans to balance pension accounts by 2018

* Taxes on capital gains, investment income to be hiked

(Adds detail, background)

By Crispian Balmer and Jean-Baptiste Vey

PARIS, June 16 (BestGrowthStock) – France’s government announced on
Wednesday it would raise the retirement age and increase taxes
for top earners in a long-awaited reform aimed at balancing the
heavily indebted pensions system by 2018.

Under the plan, which is likely to meet trade union
resistance, the minimum retirement age will be lifted gradually
to 62 in 2018 from 60, and levies on capital gains, stock
options and other investment income will all shift higher.

“There is no magic trick when it comes to pensions,” Labour
Minister Eric Woerth told reporters, unveiling proposals drawn
up after three months of consultations with sceptical unions.

“We cannot ignore the fact that the French population is
ageing. We have to confront this fact. Our European partners
have done this by working longer. We cannot avoid joining this
movement,” he said.

President Nicolas Sarkozy hopes the reform will convince
investors he is serious about cleaning up state finances, which
are set to register record deficit and debt levels in 2010, and
enable France to cling to its prized AAA sovereign debt rating.

Even with the proposed change, France will still have one of
the earliest legal retirement ages in the developed world.
Germany plans to raise its retirement age to 67, while Britain
and Italy are standardising at 65.

However, breaking through the psychological barrier was
always going to be tough in France, where previous government
attempts to implement meaningful change have often foundered in
the face of nationwide street protest.

“These are still generous conditions compared to other
European countries, but you have to take the French situation
into account,” said Laurent Bilke, chief European economist at
Nomura in London.

“The government can come back in two or three years with
another reform if it’s needed.”

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Factbox on the proposed reform [ID:nLDE65D0EO]
Factbox on current system [ID:nLDE65912R]
Analyst reaction [ID:nLDE65E28Q]
Graphic http://graphics.thomsonreuters.com/10/EZ_PSEXP0610.gif
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The state pay-as-you-go pension system is forecast to
register a 32-billion-euro ($39 billion) deficit in 2010, with
this figure set to rise above 100 billion euros by 2050 on
current trends, with an ageing population living ever longer.

Woerth said the government proposals meant pensions accounts
would be balanced by 2018 and register a 100 million euro
surplus in 2020. His forecast was based on the assumption the
jobless rate would be 6.5 percent in 2018 — a level not seen in
France for many, many years.

Even if it succeeds in stemming pensions losses, the state
still faces major problems with welfare spending, especially
health expenditure, and the broader budget, which is forecast to
register a deficit of 8 percent of GDP this year.

EUROPEAN COUNTRIES RUSH TO REFORM

France’s move is one of a number of reforms being rushed
into place by European Union countries struggling to contain a
debt crisis that has rocked markets. Spain was due to spell out
crucial labour reforms later on Wednesday. [ID:nLDE65F08T]

In a multi-pronged pension package, Woerth said people would
have to work at least 41.5 years by 2020 to earn a full pension
at 62, against 40.5 years now.

He also announced a wave of tax increases aimed primarily at
the rich, raising 3.7 billion euros in extra revenue in 2018,
including a one percent surcharge on the top income tax bracket.

“Those who have more resources than others should contribute
more than others to financing pensions,” Woerth said.

Unions have been urging the government to make up the
pension shortfall with higher taxes on the wealthy, and the
Wednesday’s fiscal tightening went further than many expected.

In another attempt to forestall union anger, Woerth said
those who began work before 18 would continue to retire at 60
and those with especially arduous jobs will continue to leave
the workplace early if they can prove their medical case.

However, all this might not be enough to prevent a showdown,
with France’s main unions already planning a day of action on
June 24 to protest against the reform drive.

Any street demonstrations would be unlikely to gain critical
mass until September, when the reform goes to parliament for
ratification. Unions shot down an ambitious pension reform in
1995 and have threatened a fresh revolt this time around.

“The aim is to succeed in September. That is when things are
going to get the most heated,” Jean-Claude Mailly, the head of
the Force Ouvriere union, said on Tuesday.

Investment Advice
(Reporting by Jean-Baptiste Vey, writing by Crispian Balmer,
editing by Paul Taylor)

UPDATE 2-France lifts retirement age to balance pension books