Study warns pension de-indexation would hit poorer French retirees hardest
A study by France's Institute for Public Policy (IPP) finds that freezing pensions against inflation would generate the largest budget savings but disproportionately harm lower-income retirees.
As France's government prepares its 2027 budget, it is looking to retirees to help rebalance public finances. According to Actu.fr, the budget plan is due to be presented on Thursday, October 1, and is expected to include several billion euros in savings tied to retiree-related spending.
Three options on the table
A study published Monday, September 28, by the Institute for Public Policy (IPP) compared three approaches: de-indexing pensions from inflation, scrapping the tax allowance on pensions, and aligning retirees' social contribution (CSG) rates with those of working people.
Full de-indexation would have "the strongest effect" financially, bringing a net 5.5 billion euros to public finances, the IPP estimates. However, it would produce an "anti-redistributive effect," tending to penalize modest-income retirees relatively more. Relative losses in living standards would range between 0.8% and 1.5% for the less affluent half of the population, dropping to as low as 0.4% for the wealthiest retirees.
Alternatives with stronger redistribution
By comparison, partially aligning retirees' CSG rates with those of workers could raise 4.2 billion euros, concentrating the impact on the middle class while relatively sparing both the poorest and the richest retirees.
Scrapping the 4,439-euro tax allowance on pensions (applicable to 2025 income) — the third option under discussion in recent weeks — would raise 5.4 billion euros and would have "the most redistributive profile," according to the study. Under this scenario, relative losses in living standards would increase with income up to the ninth decile. However, the study notes that "mitigating measures" would be needed to offset a side effect on housing-benefit calculations for the poorest households.
The IPP also assessed a scenario in which pension de-indexation would only apply above certain income thresholds — above 1,639 euros (the median pension), 2,000 euros, or 3,000 euros. In these cases, the study says, "redistributivity improves with the threshold, but imperfectly."
