Social Risks & French Social Security

• TD1-TD2 covers social risks, social protection benefits, definitions, and the French social security system.

Definitions

• Social risk involves events that reduce income or increase expenses, requiring collective support, examples include illness, disability, and work accidents.
• Social protection benefit is a monetary transfer or free service given to households when a social risk occurs, for example, unemployment benefits (ARE) given to those who lost their jobs.
• Social assistance is social protection provided during a social risk without prior contributions necessary, such as housing assistance.
• Disposable income refers to household income after mandatory deductions and benefits payments - income used for consumption.
• Mandatory deductions are of two types: taxes and social contributions; examples: income tax (IRPP) and old-age risk contributions.
• Ticket modérateur is the portion of healthcare costs patients must pay after mandatory health insurance reimbursement but before any fixed co-pays are deducted.
• Fixed co-pay is the amount deducted from reimbursements by mandatory health insurance for medical consultations or procedures (€2 per medical procedure), capped at €50 per year per insured person.
• Benefit subject to means testing targets individuals with resources below a certain limit (resource ceiling), and examples include the Active Solidarity Income (RSA) or the elderly solidarity allowance (ASPA).
• Differential benefit's maximum amount equals the resource ceiling, where the paid amount supplements initial resources to reach the ceiling, examples: RSA or the adult disability allowance (AAH).
• Familial benefit's maximum amount depends on the family situation.
• Claimable right requires an application to be received, unlike rights automatically granted.

The 7 Social Risk Families Covered in France in 2025

• Social risks are situations affecting individuals' economic security, requiring the social security system intervention.
• The seven major categories of social risks include:
• Illness and health which covers medical care, hospitalization, medication, and prevention.
• Maternity and family offers maternity/paternity leave, family allowances, and assistance for children's education.
• Old age and retirement provides retirement pensions and assistance for elderly people to stay at home.
• Work accidents and occupational diseases provide compensation and healthcare for work-related conditions.
• Disability gives pensions and allowances for those unable to work due to disability or illness.
• Unemployment and integration offers unemployment benefits, RSA, and assistance for professional reintegration.
• Housing and precariousness includes personalized housing assistance (APL), emergency housing, and efforts to combat exclusion.

Key Organizations Managing Social Risks

• Several organizations cover social risks including:
• Social Security manages health, family, old age, and work accident risks.
• Pôle Emploi handles unemployment insurance and job search support.
• Supplementary Retirement Funds such as Agirc-Arrco for private-sector employees.
• Mutual and Private Insurance companies supplement health coverage.
• Local Authorities (departments, municipalities) provide social assistance, like RSA, housing aid, and social action.
• Family Allowance Fund (CAF) provides family benefits and housing assistance.

Scale of Social Benefits Paid to Households

• Social benefits in France represent about 31% of GDP, nearly €800 billion in 2023.
• The main benefits include:
• Retirement and old-age account for about 46% of the benefits.
• Health and medical care account for about 35%.
• Family and housing assistance account for about 10%.
• Unemployment and integration account for about 9%.

Costs in Terms of Expenditure

• Social protection expenses are mainly utilized by:
• Old age and retirement accounts for over €300 billion per year due to population aging and pension financing.
• Health accounts for about €250 billion, covering hospital care, medication, and medical consultations.

Difference Between Mandatory and Supplementary Insurance

• Mandatory Insurance:
• Managed by Social Security.
• Funded by social contributions and taxes.
• Covers part of healthcare costs, leaving some out-of-pocket expenses for the insured.
• Supplementary Insurance:
• Managed by mutual or private insurance companies.
• Covers remaining costs not reimbursed by Social Security, copays, fee overruns, dental and optical care.
• Non-compulsory, but highly recommended.

Components Factored into RSA Calculation

• The Active Solidarity Income (RSA) provides a minimum income to people in financial difficulty and depends on:
• Household resources including income, allowances, and various aids.
• Family structure including single individuals, couples, and dependent children.
• A basic amount set by the State, adjusted based on the beneficiary's situation.
• In 2024, the base RSA is about €607.75 for a single person and €911.62 for a couple with no children.

Explanation of Key Concepts

• Social Risk is an event impacting an individual's financial situation, requiring financial or material protection, such as illness, old age, unemployment, or work accident.
• A social protection system includes mechanisms implemented by a state to protect citizens from social risks, relying on:
• Social insurance financed via contributions.
• Social assistance benefits subject to means testing.
• Universal protection access to healthcare for all.

Differences Between Social Insurance and Assistance Systems

• Social Insurance is contribution-based, such as retirement and health insurance.
• Social Assistance is funded by taxes and income-tested, such as RSA and housing assistance.

Differences Between Bismarckian and Beveridge Systems

• Bismarckian systems (France, Germany):
• Protection based on employment and contributions.
• Benefits proportional to contributions.
• Beveridge systems (UK, Nordic countries):
• Funded by taxes.
• Universal and identical benefits for all.

Trends in Social Protection Spending in France

• Expenses continuously increasing due to aging population, rising medical costs, and economic crises.
• Repeated Reforms aim to limit deficits by raising contributions and extending the retirement age.

Healthcare Costs Reimbursement

• Social Security reimburses part of the costs using a set scale.
• Mutual and supplementary insurances cover the remaining expenses, according to the contract.
• Special provisions: include CSS (formerly CMU-C) for the most vulnerable.

Horizontal and Vertical Redistribution

• Horizontal Redistribution shows solidarity between the healthy and sick, employed and retired.
• Vertical Redistribution shows transfers of income from high to low earners via taxes and benefits.

Essential Definitions for Financing Social Protection

• TD 3-TD4 covers the concepts of progressive contributions, imputed social contributions, the incidence of mandatory deductions, earmarked taxes, and social security.

Progressive Contribution

• A progressive contribution is a levy where the rate increases with income, meaning higher earners pay a higher rate.
• Example: Supplementary retirement contributions are higher for high incomes, making it a progressive contribution.

Imputed Social Contributions

• Imputed social contributions represent social security resources not directly paid by employers or employees but calculated to balance accounts.
• Difference with Actual Contributions: Actual contributions are effectively paid, while imputed contributions are estimates.
• Example: Civil servants' retirement contributions are often imputed.

Incidence of a Mandatory Levy

• The incidence of a levy describes how its burden is distributed among different economic agents.
• Formal Incidence is who officially pays it (example: employer contributions paid by the company).
• Real Incidence is who actually bears the burden (often employees through lower wages or consumers via higher prices).

ITAF (Earmarked Taxes)

• Earmarked taxes are mandatory levies explicitly allocated to finance social protection, forming the second source of funding after social contributions.

CSG (Generalized Social Contribution)

• The CSG is a social levy allocated to finance social protection.
• The CSG is levied on income from work, replacement income (retirement pensions, unemployment benefits), property income, and investment income.

Social Insurances

• A system to protect workers and their dependents against social risks, financed by social contributions and earmarked taxes; examples: public social security and unemployment insurance (social partners).

Key Concepts

• Different Types of Salary:
• Gross Salary is the amount before deducting employee social security contributions.
• Net Salary is the gross salary minus employee social security contributions, indicating the worker's actual earnings.
• Super-Gross Salary is the gross salary plus employer social security contributions, representing the total cost to the employer.

Differences Between Social Insurance and Assistance

• Social Insurance is contribution-based (ex: retirement, health insurance), accessible to contributing workers.
• Social Assistance is tax-funded and income-tested (ex: RSA, housing allowances).

Differences Between Social Contributions, ITAF, and Taxes

• Social Contributions are deducted from wages and used to finance social protection.
• Earmarked Taxes also finance social protection but are levied on all taxpayers, not just employees (e.g., CSG, social VAT).
• Standard Taxes fund the general state budget without direct links to social protection.

Balance of Social Protection and Social Debt

• Social Protection Balance represents the difference between resources (contributions, taxes) and expenses (reimbursements, pensions).
• Social Debt is the accumulated deficit in social protection financed by borrowing.

CADES, LFSS, and ONDAM Definitions

• CADES (Fund for Amortization of Social Debt) is responsible for repaying the social debt, funded by the CRDS.
• LFSS (Social Security Financing Law) sets the annual budget for social protection in France.
• ONDAM (National Health Insurance Spending Target) limits healthcare spending set by the state to control costs.

Evolution of Social Protection Financing in France

• Before 1990: mainly financed by social contributions.
• 1990s: introduction of the CSG (1991) to broaden financing to all incomes, not just wages.
• Since 2000: increased role of financing through ITAF and taxes to reduce labor costs.
• Today: reforms aimed at reducing company charges and compensating with taxes.

Employer Contribution Exemption Policy

• Beginning in the 1990s to promote employment, especially low wages.
• Exemptions targeted at low-skilled jobs and small businesses.
• Partial compensation by the State to avoid increasing the deficit.

Consequences of Contribution Exemptions

• Advantages: Reduced labor costs leading to increased hiring, and support for businesses, especially during crises.
• Disadvantages: Lower revenues for Social Security leading to alternative financing (CSG, taxes), and risk of poverty traps at low wages (disincentive to raise wages to keep exemptions).

Financing of Social Debt

• Since 1996, CADES has been repaying the debt with the CRDS (Contribution to the Repayment of Social Debt).
• The goal is to eliminate the debt by 2033.

Effects of Social Levies on Labour

• Labour Supply (employees): High contributions can reduce the incentive to work (lower net wages).
• Labour Demand (employers): High costs can discourage hiring, especially for low wages.

Why Doesn't the Actual Incidence of Contributions Always Match the Formal Incidence?

• Formally: contributions are paid by employers and employees.
• In reality:
• Part of employer contributions is passed on to employees (lower wages).
• Part may be passed on to consumers (higher prices).
• Employer exemptions may benefit workers indirectly (better employment conditions).

Essential Definitions on Retirement Systems

• A pay-as-you-go system is where current workers' contributions directly finance retirees' pensions, based on intergenerational solidarity.
• Example: The basic French system.

Capitalization System

• Individuals save for their retirement through an account or pension fund; at retirement, they receive their capital as an annuity or programmed withdrawals.
• Example: Supplementary pensions in the U.S and Switzerland.
• A defined contribution system fixes the amount of contributions in advance, but the pension depends on investment returns or system changes.

Pension Systems: Definitions

• The pension is guaranteed according to a predetermined formula, often based on salary and contribution period.
• Example: The civil service scheme in France. Points system:
• Accumulated contributions are converted into points that define the pension amount; each point has a monetary value at retirement.
• Example: Agirc-Arrco supplementary pensions.

Insurance Period

• Contributed period: the number of years an individual effectively worked and contributed.
• Validated period: also includes assimilated periods (unemployment, maternity, illness, etc.).

Legal Retirement Age

• The legal retirement age is the minimum age at which one can start receiving their pension; it is currently 64 in France after the 2023 reform.

Full Rate

• An insured person receives a full pension (without reduction) when they reach the legal age and have validated the required number of quarters.

Replacement Rate

• The ratio between the first pension payment and the last salary, expressing the portion of work income maintained in retirement.
• Example: If an employee earned €2,000 and receives €1,200 in retirement, the replacement rate is 60%.

Rate of Return

• The ratio between the total amount of pensions received and the total contributions paid during working life.

Characteristics and Evaluation of Retirement Systems

• Main Characteristics of Retirement Systems:
• Financing: pay-as-you-go vs. capitalization.
• Calculation of Rights: points, annuities, notional accounts.
• Solidarity vs. Contributory: some systems ensure a minimum pension, others are purely contributory.
• Demographics: impact of ageing on system balance.

Objectives and Evaluation Criteria

• Adequacy: ensuring sufficient income for retirees.
• Financial equilibrium: ensuring viability without increasing debt.
• Equity: fair distribution of efforts between generations and professional statuses.
• Incentives: avoiding negative effects on senior employment.

Characteristics of the French System

• Pay-as-you-go system, combining basic and supplementary schemes.
• Legal age of 64 years (2023 reform) with a minimum contributory period.
• Hybrid system with a contributory component (work-based rights) and a solidarity component (minimum old-age pension, family increases).
• Multiple schemes: private sector employees, civil servants, self-employed.

Explanations and Insights

• Why can retirement spending remain stable while the population ages?
• Parametric Reforms: increasing the contribution period, raising the retirement age.
• Pension Indexation: limiting pension increases relative to wages.
• Contribution Increases: raising rates to balance accounts.
• Pension Amount Reduction: lowering the replacement rate to control expenses.
• Productivity Effect: it funding improves if revenues increase.

Why Are There Several Concepts of Duration and Their Impact on Pensions?

• Contributed Period: the actual time worked and contributed directly impacting the pension.
• Validated Period: includes assimilated periods, benefiting careers interrupted by events like illness or maternity.
• Impact: a broader validated period helps reduce inequalities.

Impact of Lengthening the Contribution Period vs. Raising the Legal Age

• Lengthening the Contribution Period: penalizes those who started working early.
• Raising the Legal Age: unfavourable to those who cannot extend their careers due to physical demands or unemployment.
• Consequence: the longer contribution period affects younger generations, while raising the legal age impacts all workers.