Sustainability of the French First Pillar Pension Scheme (CNAV): Assessing Automatic Balance Mechanisms

13 Pages Posted: 13 Nov 2015

See all articles by Frederic Gannon

Frederic Gannon

Université du Havre

Stephane Hamayon

Université Paris X Nanterre

Florence Legros

Université Paris Dauphine - Economics

Vincent Touzé

Observatoire Français des Conjonctures Economiques (OFCE)

Date Written: November 28, 2014

Abstract

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.

Keywords: pension scheme sustainability, automatic balance mechanism

Suggested Citation

Gannon, Frederic and Hamayon, Stephane and Legros, Florence E. and Touzé, Vincent, Sustainability of the French First Pillar Pension Scheme (CNAV): Assessing Automatic Balance Mechanisms (November 28, 2014). Australian Journal of Actuarial Practice, 2, 33-45, 2014. Available at SSRN: https://ssrn.com/abstract=2689335

Frederic Gannon (Contact Author)

Université du Havre ( email )

Le Havre, 76057
France

Stephane Hamayon

Université Paris X Nanterre ( email )

92, av. de la République, Nanterre
Room G301, Building G
Paris, Nanterre Cedex 92001
France

Florence E. Legros

Université Paris Dauphine - Economics ( email )

Place du Marechal de Lattre Tassigny
Paris
France

Vincent Touzé

Observatoire Français des Conjonctures Economiques (OFCE) ( email )

69 Quai d'Orsay
Paris 75004
France

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