France to freeze high pensions to curb its deficit

France freezes high pensions and exposes the silent cut

That France, with its history of protests against any pension reform, is now putting the freezing of the highest pensions on the table to contain the deficit is telling. The measure, reported by Expansión, affects a small group of pensioners, but the signal matters more than the savings: if France does it, the taboo of touching pensions is no longer one.

The paradox is that in Spain this cut is already happening without freezing anything. Every year the maximum contribution bases rise, but the maximum pension remains capped. Those who contribute the most pay in more, and their future benefit does not rise in proportion. It is a hidden tax on the longest contribution careers, and recently another mechanism has been added: low and non-contributory pensions rise by around 10%, while average and high pensions are adjusted with a CPI that many consider "cooked up" and that stays below 3%. The result is a silent downward convergence.

Freezing the maximums: symbol or starting point?

The numbers call for prudence. According to circulating estimates, recipients of the maximum pension account for barely 1.5% of all pensioners. Freezing their amount has a limited budgetary effect and an enormous political one: it normalizes the idea that high pensions can be touched. From there, the next step would be to lower them, and then to touch average pensions. This escalation is the great concern of those who contribute the most and expect to receive in proportion to what they paid in.

There are, however, those who argue that freezing is an electorally costly response. The Spanish precedent of keeping indexation at 0.25% during Rajoy's term, with negative inflation, led to a social backlash that no government wants to repeat. That is why the path chosen in Spain is not to freeze, but to disguise: raise the high pensions less and the low ones more, cap the maximum pension, and let time do the work of equalizing.

The underlying question: does it still make sense to contribute more?

If all pensions converge to a similar amount, the incentive to contribute above the average fades. One school of analysis argues that the system should rethink the relationship between contributions and pensions, even opening the door for those who wish to divert part of their contributions to private plans. Another position, at the opposite extreme, proposes adjusting all pensions to the minimum wage and letting those who want more save on their own. Between both extremes, consensus is scarce.

What almost nobody disputes is that the system is under strain. Combining a cap on maximum pensions, a later retirement age and an extended calculation period is the acknowledgement of a structural problem, not an anecdote. European public debt is not growing at the same pace as pension promises, and someone will eventually pay the bill. The question is whether the adjustment will be orderly or will come when the markets stop financing the state at reasonable rates.

Meanwhile, the French freeze carries a warning value. As the saying goes, the neighbour's beard is being trimmed. It is worth looking at one's own.