As the government seeks to close a €40 billion budget deficit for 2026, the elimination of the 10% tax deduction on retirement pensions is being seriously considered. A decision that could weigh heavily on the most modest households.
What is this 10% tax deduction?
Introduced in 1978, the 10% tax deduction on retirement pensions allows 15 million households to reduce their taxable income. An automatic tax loophole, applied by the tax authorities, which concerns retirement, survivor's, disability, and alimony pensions, for a total amount between €450 per beneficiary and €4,399 per household. This is enough to offset certain age-related expenses, as well as tax deductions reserved for working people, such as travel or meal expenses.
The cost of this tax loophole reaches nearly €5 billion per year and continues to rise. In a context of strained public finances, the government and certain organizations, such as the Medef (French employers' association) and the Pensions Advisory Council (Conseil d'orientation des retraites), are seriously considering eliminating this benefit. The Minister of Public Accounts, Amélie de Montchalin, now aims to rethink each person's contribution based on their means, and no longer their age. More concretely, the aid would now only apply to the most vulnerable households, regardless of their source of income or age.
Who is affected?
The complete elimination of the allowance would affect taxable retirees, particularly the wealthiest. According to the OFCE, the wealthiest 5% of retired households would see their taxes increase by €850 on average. In total, 8.5 million households would pay more taxes, and 500,000 households would be subject to taxation, whereas they had previously avoided it. As a knock-on effect, the reference tax income of retirees would rise, which could also jeopardize access to certain social or tax benefits, such as the reduced CSG rate or aid such as MaPrimeAdapt. On the other hand, the majority the most modest retirees, often not taxable, would not be directly affected by this abolition.
Faced with the outcry from consumer associations, a partial abolition or reduction of the allowance ceiling is also being considered. This would protect modest retirees while increasing the contribution of the most well-off households. For example, lowering the allowance ceiling to €3,000 per tax household would particularly impact those who declare more than €30,000 in annual pensions.
However, the prospect of this abolition is causing serious concern among retirees, who see it as a challenge to a tax advantage, as well as a threat to their purchasing power. Unions denounce this as an unfair measure, which would hit people who have contributed their entire lives. The debate promises to be tense, as retirees represent a significant portion of the electorate, and 2027 is looming.
In brief
- The elimination of the automatic 10% tax deduction for retirees could bring in €5 billion per year for the state, enough to cover part of the €40 billion deficit by 2026
- 8.5 million households are affected, including the most affluent households
- The increase in the reference income for retirees could jeopardize access to certain social or tax benefits
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