Systeme des retraites
Pension funding
Retirement plans may be classified as defined benefit or defined contribution according to how the benefits are determined. A defined benefit plan guarantees a pension according to a fixed formula which usually depends of the salary and the number of years' membership in the plan. A defined contribution plan will provide a payout at retirement that is dependent upon the amount of money contributed and the performance of the investment. Defined benefit plans may be either funded or unfunded. Unfunded pension plans, also known as the pay as you go (PAYG) method, are financed directly from contributions from the plan sponsor or provider and/or the plan participant. This distribution results in a transfer of purchasing power between generations. This is the system in most European countries, having benefits paid directly out of current taxes and social security contributions. Social pensions provided by the state in most countries in the world are also unfunded. In a funded pension plan, contributions from the employer or from the plan members are invested in a fund towards meeting the benefits. The workers’ contributions will finance their own pensions. The pension funds invest generally in financial markets, so there is a big investment risk. This is the main system in USA, Canada and UK.
Before the reforms.
Retirement is different for the public and the private sector. For the public employees the calculation of the pension is: 0,75 x average salary (or 0,75 x average salary x number of quarter/150 for an incomplete career). For the private sector the calculation is 0,5 x average salary (or 0,5 x average salarary x number of quarter/150 for an incomplete career). For both sector, to have a full retirement it’s necessary to have 37,5 years of contribution, and the age of retirement is 60 years old. Balladur reform (1993) For the private sector, the duration of contribution necessary to get a full rate of