While the government is under fire from criticism from the left for having canceled on the night of Tuesday July 26 to Wednesday July 27 the vote for a revaluation of 500 million euros for pensions, Bruno Le Maire tried to counter- tackle. “We are fully protecting our retirees against inflation. Retirement pensions are increased by 5.1% in 2022: 1.1% in January and 4% since July”, wrote the Minister of the Economy on Twitter.
One way to highlight the 4% increase in pensions which is part of the purchasing power bill, adopted by the National Assembly on July 22, in anticipation of the increases which usually take place in January.
Yes, we fully protect our retirees against inflation.
Retirement pensions are increased by 5.1% in 2022: 1.1% in January and 4% since July.
If inflation continues to rise, there will be another pension adjustment in January 2023.
— Bruno Le Maire (@BrunoLeMaire) July 27, 2022
But rather than calming the critics, Bruno Le Maire’s tweet reacted Manuel Bompard, deputy of La France insoumise and doctor in mathematics. The elected in turn split a calculation, different, to analyze the revaluation of pensions.
1.1% in January and 4% in July, that’s precisely 3.46% over the year 2022 and not 5.1%.
The best thing for an economy minister would be to start by learning to count. https://t.co/JiHJjhFrZV
—Manuel Bompard (@mbompard) July 27, 2022
To calculate an evolution, you cannot add the percentages, as Bruno Le Maire does. Indeed, an increase of 1.1% followed by an increase of 4% does not amount to an increase of 1.1+4=5.1%. “Adding rates does not work, but on very small rates, the difference is extremely small”, explains economist Maxime Combes, engaged on the left. This explains why the Minister of the Economy, despite his mistake, is not very far from the good when he affirms that “retirement pensions are increased by 5.1% in 2022”.
Let’s take a pension of 1,000 euros. The first increase of 1.1% in January 2022 increases the pension by 11 euros to 1,011 euros. The second increase, in July 2022, is calculated on the basis of these 1,011 euros. The 4% increase allows you to receive 40.44 euros more per month, to reach a pension of 1,051.44 euros. Between December 2021 and July 2022, the amount of this pension therefore increased by 5.144%.
Moreover, to know if the purchasing power of retirees has been fully protected against inflation, as asserted by Bruno Le Maire, it is necessary to look at the effective income, and not at the overall increase. “Inflation is a loss of purchasing power on a daily basis. The challenge is not to know what the increase in retirement pensions is on 31 December, but whether, over the year, the inflation has reduced the purchasing power of retirees”, continues Maxime Combes.
Let’s take the example of a retiree who receives a pension of 1,000 euros. With the revaluation of 1.1% in January 2022, it therefore received 1,011 euros per month over the first half of the year. Or 6,066 euros. Then this pensioner received 1,051.44 euros from July and with the revaluation of 4%. Or 6,308.64 euros between July and December. In 2022, 12,374.64 euros were therefore paid to this retiree.
Without revaluation, his pension would have stagnated at 1,000 euros per month and he would have received 12,000 euros annually. Thanks to increases of 1.1% and 4%, its effective income for the year therefore increased by 3.122%. Small miscalculation therefore for Manuel Bompard, who advanced him the figure of 3.46% on Twitter. “Yes, I was nice to the government, I put the second increase on June 1”, he corrects on Twitter.
In all cases, the result is below inflation forecast at 5.5% by INSEE for the year 2022. Behind the effective revaluation of 3.122%, hides a loss of purchasing power of nearly 2.4 points for retirees. Or, in the case of an initial retirement of 1,000 euros per month, 285.36 euros lost over the year due to inflation.
“Bruno Le Maire’s communication suggests that retirees have been compensated to the nearest euro. This is not true!”
Maxime Combes, economist
And to conclude: “If the government had wanted the account to be there, it would have been necessary to increase pensions by 8.7% in July. The 4% catch-up is insufficient.”
But this shortfall is to be put into perspective. “Retirees are those who have the majority of the heritage, and some of them receive income from this heritage. A loss of their pension in relation to inflation does not necessarily mean a loss of their purchasing power”, nuance Anne -Sophie Alsif, chief economist for BDO France.
Indeed, according to INSEE, 73.4% of people over 70 own property and, according to the Pensions Orientation Council, 13% of retirees’ income comes from assets. Retirees who can rely on additional income through their assets are therefore less affected by inflation.
“In addition, unlike an active person who is dependent on his car to go to work, retirees are less affected by the increase in fuel prices”, continues Anne-Sophie Alsif. Indeed, inflation in France is strongly driven up by energy prices. In July, the rise in energy prices amounted to 29.1% according to Eurostat, for 6.1% of global inflation.
Retirees who have fewer constrained fuel expenses than working people are therefore less affected by inflation. According to Anne-Sophie Alsif, attention should not be focused on pensions: “The most affected by inflation are not pensioners, but those under 25 and those in precarious conditions, those who are below the minimum wage. “