France: Why it is a bad idea to lower the level of pensions

To meet its European commitments, and given the tax decisions already taken, the French government will have to reduce public spending sharply from 2019. It has apparently chosen to do this without changing the scope of the state. The very high weight of public spending on pensions in France gives an incentive to use a reduction in this spending to reduce fiscal deficits. But reducing public spending on pensions by lowering the level of pensions is a bad idea: Pensioners’ purchasing power will decline, which, on top of the fall in wages, will depress domestic demand; The "breakdown of intergenerational solidarity" may encourage employed members of the labour force to increase their savings sharply, in anticipation of a fall in the level of future pensions, leading to a second cause of depression of domestic demand. On the contrary, reducing public spending on pensions by increasing the retirement age normally leads to a fall in the savings rate among employed members of the labour force , since they expect their retirement period to be shorter.