Differences between public and private sector pensions: an analysis based on career profile simulations

Patrick Aubert and Corentin Plouhinec

Economie et Statistique / Economics and Statistics, 2017, issue 491-492, 23-39

Abstract: [eng] Following the alignment of the rules for private and public sector pension schemes, which began with the reform of the French pension system in 2003, there remain a number of differences. These include structural variations between the two schemes, the definition of the reference salary (salary over the best 25 years in the private sector or salary excluding bonuses over the final six months in the public sector). . We simulate the application of the two types of rules to several standard civil service careers. The impact on the replacement rate is not homogeneous : for the generation born in 1955 preparing to retire in 2017, applying private sector rules would be more beneficial for a standard category B civil servant, but less beneficial for a teacher, and slightly less beneficial for an “ A+” category manager. This is the result of the interplay of the factors that determine pension amounts with each type of rule : the proportion of bonuses in the total remuneration for civil service schemes (the higher this proportion, the lower the pension amount as a proportion of the final pay), the level and slope of the wage trajectory for private schemes (the more the slope is ascending and the greater the proportion of pay over the social security ceiling, the lower the pension as a proportion of the final pay). A change from one sector to another during a career can have a significant and varied impact on the replacement rate. It often leads to a lower replacement rate than would be achieved by remaining employed in either the public or the private sector throughout a career (for identical net salaries at all ages), but there are some configurations where a change of sector leads to a higher replacement rate : for example, the case of a category A+ civil service manager whose career finishes with around ten years in the private sector.

Date: 2017
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