France’s 2027 budget targets pensions: are foreign retirees affected?

The French government outlined its plans for the 2027 budget today (October 1) and is seeking €54 billion in savings in a bid to reduce the nation’s deficit. 

Measures include a tax on sugary products and cutbacks to the French social security budget, including freezing several benefits at their current levels - and significant plans to cut pension spending.

Below, we look at how the budget may affect residents who receive overseas pensions such as from the UK or US.

Lower cap on pension tax allowance

The key proposal in the budget is a change to the income tax allowance that pensioners receive - and this would impact foreign retirees with overseas pension income as well as French pensioners.

Pensioners currently benefit from a 10% allowance on their income, which reduces their tax bill.

The allowance was introduced for pensions in 1978, partly as a counterpart to the 10% deduction for ‘professional expenses’ available to employees, without needing to supply receipts for these activities or goods.

The allowance automatically reduces the taxable amount of qualifying pension income by 10%, subject to a ceiling. It does not apply to other income the household may have such as earnings from renting a property etc.

The pensions allowance is capped at €4,439 per household for 2026.

The government plans to reduce this to €3,000 per household in the 2027 budget, applicable from next spring’s tax declarations for income received in 2026.

As the allowance is 10% this would affect a household earning €30,000 from their pension payments, as opposed to the current €44,390. 

The move is estimated to save the government some €1.4 billion per year.

A household’s taxable income could therefore increase by up to €1,439 (10% of €44,390-€30,000), although for those sitting in the lower tax brackets the impact will be less severe.

Foreign retirees would be affected as the allowance is applied to all pensions that are taxable in France. French tax residents generally have to declare all their foreign income, including foreign pensions, with the applicable tax treaty determining whether the pension is ultimately taxed in France, the other country, or dealt with through a tax credit.

Retirees with pensions from countries that have a double taxation treaty with France (including the UK and the US) may not therefore see all pensions from these countries taxed at a higher rate, reducing the impact of the new measure. 

For example, UK state, private and employment pensions are only taxed in France, so are affected by the measure, but government-service pensions (civil service, etc) remain taxed in the UK only, so are not affected. 

American citizens living in France are typically taxed in the US only under the terms of the dual treaty and so are not affected.

The lower cap is a scaled-back version of the proposal considered during the 2026 budget process, which would have replaced the 10% allowance with a flat €2,000 deduction. That proposal was ultimately dropped. 

French pensions subject to partial freeze 

A second major change included in the budget affecting pensions is a partial freezing of France’s basic pension payments (pension de base) - rises for these are usually tied to inflation.

Retirees with total pension income of €1,260 a month or less would see their basic pension rise in line with inflation, affecting around 1.4 million people. 

However, pensions between €1,261 and €2,034 will only partially increase, being sub-indexed to inflation. 

The exact level is open to change via a future decree and not fixed as yet in the budget. This has potentially been left open as a point of compromise and concession for upcoming debates.

Pensioners earning above €2,034 per month will see their basic pensions frozen entirely at current levels. 

The government has put the savings from slowing increases to pensions above €1,260 at around €4.1 billion, as part of a wider target of about €5.5 billion in pension savings.  

These changes only apply to basic French pension payouts, and income drawn from other pension sources, such as complementary pensions, private pensions or foreign pensions, is unaffected by the measure.

The government said that the €2,034 figure would come from combining all pension sources (private and state).

Is the budget likely to be passed with these proposals?

These changes are far from assured as the budget needs to be approved by parliament. 

The full budget was laid out today, with the social security text to be debated in the Assemblée nationale on October 20 - 26. 

It will then be debated by senators – potentially shuffled back and forth between the chambers – before a final vote by MPs in December. 

The government, which remains without a majority backing in the chambers, faces an uphill struggle to pass the budget in its current form. 

It will require the backing of at least one other party or group of MPs in the chamber to pass the text, although this will likely come at the cost of altering several measures. 

This may include changes to pensions outlined above. 

Last year, the government passed the social security budget on time – although not the main budget text – via support from the Socialist Party, following several concessions including a suspension of the 2023 pension reform. 

The Socialists have already criticised this year’s budget, and even threatened a vote of no confidence in Prime Minister Sébastien Lecornu, making an agreement on the text in its current state all but impossible.