Year after reform, French pension system faces new deficit risk

By Emmanuel Jarry

PARIS (Reuters) - France's pension system faces a new risk of entering a deficit due to optimistic projections for economic growth and job creation, a government-mandated watchdog said, less than a year after the system's latest overhaul.

President Francois Hollande's Socialist government enacted its latest reform of the system in December 2013, the fourth since 1993. The overhaul aimed to plug a deficit due to reach 20.7 billion euros (16.4 billion pounds) by 2020 if nothing was done.

But at the time, then Prime Minister Jean-Marc Ayrault did not rule out further measures and he created the COR pensions watchdog to monitor the system's evolution and ensure that it did not slip back into a deficit spiral.

COR president Yannick Moreau told a seminar on the issue that the system's situation was "potentially more complicated" than the government had foreseen, notably because it relied on over optimistic economic forecasts.

The government has already revised downward its growth projections since the reform was enacted and the watchdog see its long-term forecast for a jobless rate of 4.5 percent in 2030-2040 as optimistic.

While the COR stopped short of calling for a new reform of the pension system, Moreau added that she could press for further measures in July of next year.

The recommendations could seek changes to the length and size of payments made by wage earners - both highly sensitive areas in France.

French pensions are almost entirely borne by the state, which means public spending on pensions is 14.4 percent of economic output compared to an EU average of 12.9 percent

Currently the government, which is struggling to bring its overall public deficit down to an EU target of 3 percent of gross domestic product, has no plan to overhaul the system.

"At this stage we don't see the need for further corrective measures," a spokesperson at the Ministry for Social Affairs told Reuters. "We think that the January 2014 (its enactment date) will allow a progressive return to balance for the basic state pension, with the first effects felt in 2017."

(Writing by Nicholas Vinocur; editing by Mark John)