French government proposes pension indexing cap

The French government is proposing to limit how much pensions increase with inflation, aiming to reduce the Social Security deficit. The plan would cap automatic pension indexing at 1260 euros per month, with the government having the power to freeze indexing further up to 2000 euros.

Pension spending set to rise without action

Without changes to the current system, pension spending is expected to increase by 13 billion euros in the coming year. This increase is partly due to the growing number of retirees and the automatic adjustment of pensions based on inflation, which is projected to be 2.1% in 2026.

Minister defends the proposal

Jean-Pierre Farandou, the Minister of Labor and Solidarity, defended the proposal during a Senate hearing, stating that the measure would apply 100% indexing up to 1260 euros and no indexing beyond that. He acknowledged the measure as "quite harsh" but argued that it is necessary for overall savings.

Government seeks shared effort

Farandou emphasized that the plan is not against retirees but requires contributions from all segments of society. He noted that retirees would bear a 10% effort, affecting 25% of the population, which he considered reasonable. He also stressed the importance of shared responsibility between retirees and active workers.

Income condition for tax exemption

The government also plans to introduce an income condition to qualify for a 10% tax exemption for retirees. This provision was rejected in the first reading by the National Assembly, as it was expected to save 1.4 billion euros.

Thresholds under scrutiny

The senatorial committee questioned how the government determined the pension thresholds. Farandou explained that the 1260 euro threshold corresponds to 85% of the minimum wage and is a historical reference for small pensions. The 2000 euro threshold, he said, is simply a "round number" with no specific significance.

Concerns over low-income retirees

Some senators expressed concern that retirees earning below 2000 euros might struggle with basic expenses such as rent. Socialist senator Monique Lubin warned that this group is not affluent and could face hardship under the new rules.

Parliamentary unease and past caution

Even among the Prime Minister's allies in parliament, the measure has caused unease. Senator Martin Lévrier cautioned against targeting the lowest earners, recalling the government’s retreat during the 2018 Yellow Vest protests over tax increases for retirees.

Minister outlines future plans

Farandou outlined plans to model the pension system after the private complementary pension scheme, Agirc-Arrco, which has agreed to slightly lag behind inflation. He suggested that this approach could be a breakthrough and would allow the government flexibility in the long term.