By Richard Lough
PARIS (Reuters) - President Emmanuel Macron faces the toughest challenge to his authority after his government bypassed the lower house to push through a deeply unpopular pension reform bill that will raise the retirement age. Here is why:
WHAT CHANGES TO THE PENSION SYSTEM DOES MACRON WANT TO MAKE?
The legislation raises the retirement age by two years to 64. The change will be implemented gradually, with the age increased by three months each year starting from this September, until 2030.
Some workers in jobs deemed physically or mentally arduous will maintain the right to retire earlier than most of the working population.
From 2027, most workers will have to make social security contributions over 43 years rather than 42 years in order to draw a full pension. This was already foreseen in a 2014 reform but Macron is accelerating the pace of transition.
In comparison, the United States is slowly raising its retirement age to 67, while Britain has announced plans to raise the state pension age to 68 by somewhere between 2037 and 2039.
WHY DOES THE GOVERNMENT SAY CHANGE IS NEEDED?
Macron's government says reform is necessary to keep the pension budget in the black. Failure to act would see the pension system record an annual deficit of 13.5 billion euros by 2030, the government forecasts.
The principal measures were initially seen generating 17.7 billion euros in additional contributions by 2030. The government calculated that "accompanying measures" to smooth the way would cost 4.8 billion euros, creating a 0.3 billion euros surplus in 2030.
However, additional sweeteners raised this cost to 6 billion euros, leaving the government to find further last-minute savings and extra contributions to balance the budget.
France's pension system costs nearly 14% of GDP, the third highest within the OECD behind Italy and Greece.
WHY IS PENSION REFORM SUCH A DELICATE TASK IN FRANCE?
The pension system is a cornerstone of France's cherished model of social protection.
It is founded upon an obligatory contributory pension scheme and upon solidarity between generations. In other words, the contributions of those who are currently working directly fund the pensions of those now in retirement.
Individuals can make voluntary contributions into savings products to top-up their eventual pension through the state-run system, but private pension funds like those common in Britain and the United States do not exist.
Past presidents including Nicolas Sarkozy and Jacques Chirac met similarly fierce resistance from trade unions and on the street when seeking to change the pension system.
WHAT HAPPENS NEXT?
Macron's decision to ram through the pension legislation without a vote has infuriated opponents and triggered pockets of violent unrest.
The government faces a vote of no-confidence in parliament. The motion is expected to fail, leaving the government to fight another day, while trade unions promise to keep up their battle.
If unexpectedly the no-confidence vote is passed, Prime Minister Elisabeth Borne would tender her government's resignation in the hours that followed. Macron would have to form a new government with no working majority in parliament and remain reliant on a deeply divided mainstream centre right for support.
He could call a referendum on the pension reform and risk it becoming a plebiscite on his presidency. Or he could dissolve parliament and call snap elections, a move observers predict would only weaken him further in the National Assembly.
(Writing by Richard Lough; Editing by Hugh Lawson)