The French like to boast of having invented the world’s first pension system… back in 1673! Colbert, a minister of Louis XIV, was indeed behind a royal edict instituting a pension for members of the navy. But more than the desire to protect the king’s servants in their declining years, its aim was primarily to recruit and retain volunteers with a system that was attractive on the face of things, but one that few were able to enjoy…
The idea of pooling resources to meet the needs of those who can no longer work has become commonplace in the developed world since then. The “promise of a pension” is something that has occupied minds over time, in line with political developments and economic upheavals. Some visionaries have even cast doubt on the viability of such a system. In Harmonies of Political Economy, published in 1850, Frédéric Bastiat looks at “friendly societies”, and warns against shifting responsibility: “It is never without creating great dangers and great difficulties for the future that we can subtract the individual from the consequences of his own actions.”
It was in the aftermath of the Second World War that the foundations of France’s current pension system were laid, by two ordinances in October 1945 followed by the Constitution of 1946, with the aim of “ridding workers of the uncertainty of the future”. Since then, the notion of intergenerational solidarity has become deeply rooted in French minds and behaviours.
Today, retirement is central to everyone’s conscious and unconscious thinking. Conscious in view of the magnitude of the demographic and financial challenges; and unconscious with the fear of seeing a hypothetical Eldorado, longed for over a lifetime, gradually slip out of reach.
All developed societies will, one day or another, have to revisit their pension systems and the promises they convey. It is at last France’s turn to put the subject on the table, and we can only welcome the new era opened by the PACTE law – an action plan for business growth and transformation. By highlighting the option of long-term individual savings, the proposed law, currently before parliament, represents a major advance in the development of retirement savings.
Old habits die hard, and a lot of explaining will be necessary to get the indomitable Gauls, reputed to be “refractory to change”, on side. It is interesting to note that the Romans, who could pride themselves on their sense of anticipation, were actually quicker off the mark. Inspired by the Swedish notional model, Italy began thinking as early as 1996 about introducing a system of capitalisation… that will be implemented around 2036. That’s Pax Romana for the long haul!
The development of individual savings is an essential step in promoting awareness of the need to prepare for retirement individually. It is the start of a long road that will have to be carefully signposted and which will require a hefty dose of financial instruction. Educating our fellow citizens is the essential prerequisite for facing the world of tomorrow. La Financière de l’Echiquier will be happy to contribute.
Didier Le Menestrel