The deindexation of pensions further penalizes low-income retirees, according to the IPP

The deindexation of pensions tends to be more costly for low-income households than other avenues envisaged to make retirees contribute to the rebalancing of public finances, according to a study by the Institute of Public Policies (IPP) published this Monday, September 28. The study appears as the government prepares to present its draft budget for 2027 which, according to the first elements mentioned, will include several billion euros in savings on expenses linked to retirees.

Generally speaking, the study compares the effects for retirees in three scenarios, the deindexation of pensions, the removal of the tax allowance on pensions, or the alignment of the CSG rates of retirees with that of workers. A total deindexation “would have the strongest effect” financially, bringing 5.5 billion euros to public finances, in net, estimates the IPP. But it “produces an anti-redistributive effect”, by tending to penalize low-income retirees relatively more.

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“Redistributivity improves with the threshold, but imperfectly”

“The relative losses” in standard of living are “between 0.8% and 1.5%” in the least well-off half of the population, and then decrease “up to 0.4%” for the most well-off retirees, underlines the study. By comparison, a partial alignment of the CSG rates of retirees with that of workers could bring in 4.2 billion euros, by centering the losses in standard of living on the middle classes, the most modest and the richest being relatively spared.

As for the removal of the tax reduction of 4,439 euros on pensions, the third scenario mentioned in recent weeks, it would bring in 5.4 billion euros and “would present the most redistributive profile”, according to this work. In this scenario, in fact, the relative losses in standard of living would increase with income, up to the ninth decile.

On the other hand, “mitigation measures” would be necessary to compensate for a side effect on the calculation of housing assistance for the poorest, notes the study. The study also evaluates a scenario where the deindexation of pensions would only be effective from certain income thresholds (above 1639 euros - the median of pensions -, above 2000 euros, above 3000 euros). In these hypotheses, “redistributivity improves with the threshold, but imperfectly,” estimates the study.