Tax Relief on Pension Income
21st April 2025
The 10% tax allowance on pension income is under review by the government.
In France, all pension income is granted a 10% flat rate allowance (abattement fiscal) against income tax. Both foreign and French pensions receive the allowance, although some foreign pensions are exempt from French income tax under double taxation treaties, eg, government service pensions and US pensions.
The same allowance is in place for salaries and professional income, but whilst these allowances are to cover expenses, the purpose of the pension allowance, introduced in 1977, is less clear.
Last year, an official advisory body to the government, the Conseil d'orientation des retraites proposed that the allowance be abolished as "This favourable tax treatment of wealthy pensioners in relation to the active people does not in practice correspond to any identified justification for public policy.” Pensioners on a low income get no benefit, as they are below the threshold where they would pay income tax.
Pensions in France cost the state nearly €400 billion a year, representing over 13% of GNP and 24% of all public expenditure. The cost of pensions as a proportion of GDP is the second highest (after Italy) of comparison countries used by the COR, although the differences are not substantial.
According to the COR, the measure could bring in around €4 billion in additional tax revenue per year.
Despite widespread speculation in the French media that the 10% allowance was under threat this year, in fact, not only has it been retained, but it was also increased by 1.8% to compensate for inflation.
Nevertheless, the government has recently indicated that it is one of the tax advantages that is currently under review, with the Minister of Budget, Amélie de Montchalin, stating that “We cannot indefinitely rely on those in work to finance new social expenditure linked to aging. It is not your age that must define your contribution, but also the means at your disposal.”
There is both a floor and a ceiling to the level of the 10% allowance, with a minimum of €450 per household and a maximum of €4,399. Accordingly, any household declaring more than €43,399 in pension income has their allowance capped at €4,399.
The ceiling is the same regardless of whether the household is a single person or a couple. And inevitably it is wealthy households who benefit most.
However, the unpleasant reality for any government seeking to abolish the allowance is that they are unlikely to have a parliamentary majority for such a measure, and there is the likelihood of serious and widespread industrial action should it be proposed.
A more likely outcome, therefore, is a reduction in the ceiling allowance, thus preserving the position of those on a low-income. Even such a measure would still probably find strong resistance, both inside and outside of parliament, but with the government obliged to find a further €40 billion in savings (or additional income) for 2026, to reduce a forecast public deficit equal to 5.4% of GDP this year, officials are poring over all niches fiscales to try and balance the books.
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