Pension reform: what are the impacts for the self-employed?

In recent weeks, pension reform has worried a majority of French people. The debates are numerous, not to mention the strikes and social movements that are multiplying to block the territory. The entire French population is concerned by these new measures, the self-employed being no exception. In this article, we offer you a summary of pension reform and its impacts for the self-employed.

The 2023 pension reform: summary

Planned changes

The pension reform provides for several changes, some of which have generated strong reactions for a majority of French citizens. To better understand the debate, here is a summary of the key points of this reform:

• A reduction in the legal starting age from 62 to 64 by 2030. Maintaining the age of departure without any discount at 67. In other words, it will no longer be possible to retire at the age of 62, even if you have contributed all the quarters required for a full pension.
• Acceleration of the Touraine reform: 43 years of contributions required to leave at full rate (compared to 42 years up to now), from 2027 instead of 2030 as initially planned. The Touraine reform was proposed and promoted on the condition that there was no reduction in the legal retirement age. Indeed, current populations who are close to retirement will have to work longer to ensure their full pension, even if they started their careers earlier.
• Closure of “most existing special regimes” (with exception). Currently, there are no less than forty pension funds, including fifteen special schemes linked to private services or companies (e.g. the regime for police officers, actors in La Comédie-Française or that of parliamentarians). In order to reduce this number, the government is proposing to close a majority of these special regimes. This decision will be effective for new recruits as of September 1, 2023 for the special regimes concerned. They will thus be affiliated to the general regime and will no longer benefit from special advantages.
• Revaluation of “small pensions” (minimum pension of €1,200 gross per month). To help the most precarious households, the government plans to increase the value of small pensions for retirees who have completed a full career, for an amount around €1,200 gross per month. However, certain conditions must be met to benefit from this valuation (being at full rate and having contributed 172 quarters), which does not correspond to all of the 5 million retirees under this threshold.
• Long career plan with early retirement. Workers who started working early will be able to benefit from early retirement, but this will depend on the age groups that have been set (e.g. leaving at 58 to start their career at 16 or leaving at 62 for starting their career at 20).
• Facilitate the employability of seniors. Several devices are planned: a “seniors index”, inspired by the model ofGender Equality Index in companies, the creation of a senior permanent contract to encourage the employment of workers at the end of their career and more flexibility in the job-retirement transition. Indeed, for the reform to be functional, the government counts on the contribution of older workers until the end of their career.
• Taking into account the arduous nature of work, in particular through the establishment of a fund of “prevention of professional wear and tear”.

Debates and implementation

Pension reform is a recurring topic in political programs. Emmanuel Macron had also mentioned it during his presidential campaign and postponed it because of the health crisis. On the other hand, one may wonder why the government insists on implementing this reform, which is strongly contested by the majority of the French population. This is due to several factors:

• First of all, the current pension system is considered unsustainable in the long term, due to the aging of the population and the increase in life expectancy. The coming Papy Boom by 2030 thus seems to strongly threaten the sustainability of this system since the following generations will not be numerous enough to finance all pensions.
• The government also wants to harmonize the various existing pension systems and erase inequalities between different groups of workers. Special plans offer certain advantages, such as early retirement compared to the common plan. In a desire for equity, the government wants the reform to help reduce disparities between retirees.
• Finally, the reform aims to encourage workers to remain active in the labour market longer in order to maintain economic growth. To do this, the government wants to encourage companies that, until now, could have been encouraged to part with profiles at the end of their career or more simply not to hire them. On the talent side, workers will be supported to facilitate their integration at the end of their career and their gradual transition to retirement.

So why is this reform being debated? The subject of pensions has always been a source of debate in public opinion, especially because the impacts are particularly significant for workers. The increase in the retirement age and the duration of contributions required for a full pension are the points that are the most controversial. Opinions differ on the issue and it is difficult to find a compromise. The government believes that this change is necessary to maintain the viability of our system, the most disadvantaged populations are worried about the consequences on their finances and health, and some scientists, economists or politicians say that the current system is viable and will be in balance by 2045. Of course, the end of special regimes is a matter of concern for some workers, especially for those in sectors such as transport. Finally, the issue of arduous work also raises numerous disputes since the workers concerned fear that their working conditions will not be sufficiently taken into account in the new pension rules.

The subject in the background behind these numerous concerns is none other than well-being at work. While a majority of workers preferred Work more to earn more in 2018, the trend has now been reversed. Active people prefer to limit their working time to devote this free time to leisure activities, household management or even a secondary activity. The pension reform is therefore, once again, an illustration of this new relationship to work, which the population believes is not sufficiently heard by political decision-makers.

3 major impacts on the retirement of the self-employed

These last concerns involve the entire population, but the self-employed will also observe major changes in their status. Here are the 3 most important impacts we identified with Caravel :

Impact 1: Work longer

With the decline in the retirement age and the extension of the duration of contributions, many freelancers will have to work longer to hope to receive a full pension. Except that to reach the required 43 annuities, it is necessary to limit periods of inactivity as much as possible. However, the status of self-employed does not offer the same insurance as an employee, which is often a source of precariousness and financial irregularity. Moreover, some of the schemes dedicated to the self-employed are concerned by the abolition of special regimes. They will therefore have to contribute to the general regime, without being able to benefit from compensation to balance the precariousness of their status. Independent women are also more impacted by this reform since they are more likely to face periods without professional activity, especially in the case of pregnancy and maternity leave.

To mitigate these changes, self-employed individuals can consider diversifying their sources of income via several mechanisms: setting up a supplementary pension savings, invest in real estate or shares, etc.

Impact n° 2: Reduction in the amount of the retirement pension for the self-employed

With the pension reform, many parameters such as the retirement age and the duration of contributions will change. Self-employed persons should therefore be aware that the amount of their retirement pension could differ from their initial expectations. To overcome these uncertainties, freelancers can use retirement simulators to estimate the amount of their pension. However, these estimates are subject to change in light of the current political context and future reforms.

Impact #3: Loss of tax benefits

Self-employed persons currently benefit from tax advantages such as the Madelin tax reduction. With pension reform, some of these benefits could be called into question, in particular through the abolition of contributions and the introduction of taxes. Self-employed persons must therefore be vigilant and keep up to date with tax developments.

Pension reform is not easy to understand in its entirety. Here's what you need to remember: the retirement age will be pushed back by two more years, 43 years of contributions will be required to qualify for a full pension, the self-employed will be linked to the general system. These developments therefore require a recalibration of their activity to insure a retirement pension sufficient in case of early departure.

The information in this article is subject to change as the reform evolves.

Article co-written with Caravel.
Caravel is a simple, flexible and sustainable retirement savings account that allows the self-employed, regardless of their status, to finance their future.