France Unveils Pension Reform Draft

by Ulrika Lomas, Tax-News.com, Brussels

17 June 2010

Determined to return the country’s pension scheme to balance by 2018, France has unveiled details of its draft pension reform proposals, which include plans to raise the legal age of retirement and to increase taxes on income from capital and on the country’s top earners.

Announcing the measures, Employment Minister Eric Woerth emphasized the commitment of the French President, the Prime Minister and the government to establishing a reform that was responsible and fair. The key measures outlined by the minister are as follows:

• By way of a “pension solidarity contribution”, the top rate of income tax in France is to rise from 40% to 41%, levied on taxable income in excess of EUR69,783. The 1% income tax increase will fall outside of the tax shield (bouclier fiscal), and is expected to generate in the region of EUR230m.
• Regarding income derived from capital, the tax credit for dividends benefiting shareholders is due to be abolished, and will serve to provide around EUR645m in additional revenue for the state in 2011.
• Lump sum levies imposed on capital derived from income and wealth are also set to rise by 1%, generating approximately EUR265m for the government, while capital gains from the sale of securities such as shares and bonds will become subject to income tax, irrespective of their amount, thus generating around EUR180m.
• Taxes levied on both stock options and enhanced pensions are also set to rise.
• The legal age of retirement in France is to rise progressively from 60 to 62 between now and 2018 (rising by four months a year as from July 1, 2011). This modification will represent a gain for the government of around EUR19bn in 2018. The age at which individuals will be entitled to receive a full pension will also be increased, from 65 to 67 years.
• The government aims to increase the pension contribution period progressively to 41.5 years in 2020, while indicating that this figure is not set in stone.
• The pension reform plans also provide for an alignment over a period of ten years of the pension contribution rate for civil servants with that of individuals in the private sector, increasing from the current 7.85% to 10.55%.

Following a consultation period with unions and employers, the final version of the text is due to be presented to the council of ministers on July 13.

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