French Government Proposes Adjustable Pension Indexation Mechanism via Decree

PARIS — According to a draft article from the social security financing bill consulted by POLITICO, the government wishes to decide by decree the freezing or under-indexation of pensions above 1,260 euros.

Above this threshold, the mechanism submitted by the government to the Council of State is significantly more open than initial announcements suggested.

The government could, in a classic manner, inscribe in the law a threshold above which pensions would no longer be revalued, as the Édouard Philippe government had done in 2019 for pensions above 2,000 euros.

Finally, a three-tier system is planned by the executive, but without setting in stone the level of revaluations.

“It is a very clever attempt to resolve the problem in which parliamentarians find themselves, who all want to freeze [pensions] but not vote for it,” analyzes a former social accounts expert from Bercy.

Three tiers, a decree

As the presentation of the financial texts approaches Thursday morning, Sébastien Lecornu promised that “no pension will decrease,” and that the “pace of increase [of pensions] will be decided in Parliament.”

At this stage, in his draft article, the Prime Minister sets no rate and leaves it to his government (or a future executive during the year) to adjust the setting.

Three tiers are retained: up to 1,260 euros, inflation-linked revaluation. Between 1,260 and 2,034 euros, and above 2,034 euros, the future decree must establish under-indexation, or even the freezing of pensions.

“It is reversible because the government can always change the number in the decree,” notes a senior official consulted by POLITICO.

“It is a masterstroke not to anchor the under-indexation or freeze in stone but only to allow it, which may make it votable, and to provide that, by default, in the absence of a decree with another coefficient, freezing applies,” comments the expert already cited.

Concretely, the government would not ask parliamentarians to vote directly on the absence of revaluation, but to vote on a mechanism that leaves it to the government to set the figures.

According to the draft article, these coefficients would furthermore be set by the government “in light of the financial prospects of the retirement system,” which would allow it to loosen or tighten the purse strings, depending on economic conditions.

“They have built a complex contraption to be politically clever, but they will not gain an extra vote with this device, compared to a full freeze,” anticipates the senior official, unconvinced by the setup.

The decree may be issued until October 31, 2027 and apply retroactively to January 1. A sort of safeguard clause that allows leaving the choice to the next executive, after the presidential election, to reverse a total or partial freeze.

This draft article says nothing about the reform of the tax abatement benefiting retirees, which is another savings avenue envisaged by the government.

Contacted to confirm that this version will indeed be in the bill, Matignon did not respond to our requests.