Pensions: contributions, CSG, taxes… How is the French system financed?

Work harder to increase contributions to pension funds and thus rebalance their budgets. Here is a summary of the government’s goal with pension reform.

According to the executive, this is the only solution to save France’s pay-as-you-go model. Not so for opponents of delaying the statutory retirement age. Admittedly, the number of contributors and with it the contributions are decreasing, but other sources of funding could be found to balance the system. In reality, this is already partly the case: the share of contributions in the income of pension funds continues to decrease.

Here, in four points, is what you need to know about the current funding of the system.

1. Contributions of employees and employers

At the heart of France’s pay-as-you-go system is the idea that current workers should pay the pensions of current retirees, who in turn will benefit from the pensions of future workers when they retire. Employee contributions are made in the form of social, wage and employer contributions paid by employers.

According to the Governing Council of Pensions (COR), social insurance contributions to the pension scheme amounted to 272.8 billion euros in 2021, or 79% of the 346 billion euros in global resources.

Part of this amount is paid by the contributing state, like any employer. In 2019, this amount was 41.6 billion euros, or 15% of total contributions and 12% of total income. As COR points out, these contributions can only be paid because the government collects taxes, so they can be considered as such.

If contributions remain the main source of income for the French pension system, their share continues to decline. In 2004, collections made up 82% of the resources of the pension system, that is, 3 points more than in 2021. If we look only at the National Pension Insurance Fund (Cnav, the main private scheme), the decline is even sharper: from 83. In 2003, it fell to 67% in 2021.

2. Taxes and Duties Affected

The second largest income from the pension system – 12% of the total income – consists of all taxes and fees allocated to social protection systems (Itaf). There are about fifty. In 2021, it was 40.8 billion euros for the pension system alone.

The first, and certainly the most famous, of the itaf is the generalized social contribution (CSG). It includes earned income, replacement income such as unemployment benefits or retirement pensions that also contribute to the funding of the pension system, income from assets such as property income, investment income such as income from movable property, or gambling.

Other Itafs apply to employee income, production, consumption or other income, as the case may be. Thus, if we take into account all income from the pension system (donations, endowments, etc.), the income from activity accounts for 89.8% of the income – 10 points more than if only contributions are taken into account – capital income is 4.1%, consumption 2 provides .7%. % and pensions 3.4%.

These tax revenues attributed to the pension system can be explained by two main reasons. On the one hand, the state compensates for the exemption from social payments for low wages. On the other hand, it finances the solidarity mechanisms built into the pension system, such as Aspa (minimum old age) or even the neighborhoods that are approved for free in case of a period of unemployment or suspension of work.

3. Transfers from third party organizations and other resources

Transfers from third-party bodies – 7% of pension system income – correspond to payments from other social security bodies to pension funds. For example, the family department finances pension rights related to children. The unemployment office contributes to the payment of entitlements related to unemployment benefit periods.

The remaining 2% is paid by the state. These include balancing subsidies allocated to certain specific schemes in the deficit. According to COR, these subsidies account for 81% of mining regime revenues and at least 60% of SNCF and RATP special regime revenues.

4. Funding is highly dependent on plans

Once this general framework is established, it becomes clear that the funding structure varies greatly depending on the pension scheme. The pension system of civil servants is almost entirely based on contributions from employers (81%). Indeed, employer contributions – funded mainly by taxes, as the relevant employers are the State, local authorities and hospitals – are recalculated every year to balance the system.

On the contrary, special regimes characterized by particularly unfavorable demographic balances survive mainly on state aid. 8% of their funding is provided by Itaf and supported by the State, plus about 35% of balancing subsidies from the State.

As for the main scheme for private sector workers, the situation is more mixed. About half (47%) of the program’s funding is made possible by contributions, and 14% by Itaf and other government support. Added to this is support from the Old Age Solidarity Fund (FSV), which is relatively large compared to other schemes, up to 12% of total income.

Funded primarily by the CSG and therefore through taxes, the FSV supports the funding of minimum retirement, certain quarters approved free of charge, as well as certain disposable devices. This is how the FSV reminds its website thanks to the pension funds that support the exceptional payment of 40 euros in 2015.