In his speech on 15 July 2025, the Prime Minister announced a reform of the tax allowance on retirement and disability pensions, changing it from a 10 per cent allowance to a flat-rate allowance of 2,000 euros. This allowance, used primarily for the calculation of income tax, also has an impact on other levies and transfers. Applying the new deduction scheme to both the calculation of income tax and housing benefit would have a strongly redistributive effect, whilst improving the budget balance by around 550 million euros. It would also ensure that there are more winners than losers as a result of the reform. Conversely, applying it solely to the calculation of income tax would lead to revenue almost twice as high (around one billion euros), with lesser redistributive effects and a large majority of people losing out as a result of the reform.
To better understand what this reform might change, it is necessary to explain in detail how this allowance currently works and to put forward some assumptions regarding the practical implementation of the future reform.
