The French government has unveiled plans to raise the retirement age to 62 in a sweeping overhaul of the pensions system that labour unions have vowed to fight to the end.

French workers will have to pay contributions for a longer period and new taxes will be slapped on high-income earners and on capital gains to plug a gaping hole in pensions funding, labour minister Eric Woerth said.

"It is imperative that we salvage our pensions system," Mr Woerth said as he rolled out the proposed changes, the most controversial of which is pushing back retirement from age 60 to 62 by 2018.

"Working longer is inevitable. There is no magical solution."

Talk of raising the retirement age had been taboo in France where the right to stop working from age 60 has been enshrined since 1982, a legacy of Socialist president Francois Mitterrand's administration.

The package will allow the government to wipe out the pensions scheme's deficit by 2018, Mr Woerth said, with the new taxes set to haul in an extra 3.7 billion euros ($5.2 billion) in revenue.

The government is planning to extend the contributions period to 41 years and three months from 40.5 years and the retirement age will be raised gradually to 62 over the coming eight years.

"All of our partners in Europe have done it," Mr Woerth said following a late-night meeting with French president Nicolas Sarkozy to finalise the reform package.

"It is not possible to stay on the sidelines of this movement."

Reforming France's pensions system is shaping up as the centrepiece of Mr Sarkozy's agenda as he heads for a re-election battle in 2012.

A pensions reform bill will be presented to Mr Sarkozy's cabinet next month before heading to parliament in September.

- AFP