French Government Proposes Increased Pension Under-Indexation to Fund Reform Suspension, Sparking Debate

Paris, France – The French government has outlined plans for a significant under-indexation of pensions in 2027, following a proposed freeze in 2026, to finance the suspension of the 2023 pension reform. This measure, detailed in a rectifying letter to the 2026 Social Security budget, aims to offset the costs of delaying the full implementation of the reform, which included raising the retirement age and increasing contribution periods. The decision has ignited strong reactions from unions and opposition parties.

Economist Sylvain Catherine, in a recent social media post, highlighted the nuances of such policies. "A de-indexation of pensions has no mechanical impact on future retirees, unless it is accompanied by a freeze in the revaluation coefficients of past salaries used to calculate the initial pension," Catherine stated, adding, "To my knowledge, nothing indicates that this is the case." He further explained the broader economic implications: "However, it has an economic impact: since pensions are financed by active workers, any moderation of current pensions lightens the burden for active workers and their children."

The proposed financing mechanism includes an additional 0.5 percentage point under-indexation of pensions in 2027, bringing the total under-indexation to 0.9 points, alongside a planned freeze for 2026. This is in addition to an increase in the contribution rate for supplementary health organizations. The government estimates the suspension of the reform will cost 100 million euros in 2026 and 1.4 billion euros in 2027.

Critics argue that current and future retirees will disproportionately bear the financial burden. Yvan Ricordeau, Deputy Secretary General of the CFDT, expressed concern, stating, "It is not possible for the de-indexation of pensions to foresee almost two blank years for retirees in 2026 and 2027. The most modest cannot bear such a measure." Denis Gravouil of the CGT echoed this sentiment, lamenting, "We are making current and future retirees pay for a micro-suspension of the reform."

The distinction between "désindexation" (de-indexation or freeze) and "sous-indexation" (under-indexation) is crucial in this debate. De-indexation implies no revaluation, while under-indexation means pensions increase at a rate lower than inflation. The government's plan combines a freeze in 2026 with under-indexation in 2027, effectively reducing the purchasing power of retirees relative to inflation. This approach seeks to maintain the financial viability of the pension system without increasing contributions from active workers, aligning with the economic principle articulated by Catherine.