There will be four different rates of social charges on pension income in 2019, depending on your income and your status.

In a television address last month, President Emmanuel Macron announced that a planned increase in the standard rate of the social charge 'CSG' on pension income would be abandoned for those with an income of less than €22,850 a year.

The announcement followed weeks of violent protests across the country, notably in Paris, by the ‘gilet jaunes’ movement, which included amongst them many retirees who were going to be affected by the increase.

Adding grist to the mill for the pensioners, was the fact that pensions are also planned to only rise by 0.3% this year, instead of 1.6%, as they should have done under previous indexation rules.

It will mean that only around 30% of retirees will now face the hike in CSG (Contribution Sociale Généralisée) of 1.7 percentage points, from 6.6% to 8.3%.

The proposed increase is the quid pro quo of the progressive reduction and abolition of certain employment based social security contributions.

However, whilst the change is broadly income neutral for employees, around 4 million retired persons receive no compensatory reduction, an outcome the President acknowledged was unfair, stating: "L’effort qui leur a été demandé était trop important et n’était pas juste".

Rates/Thresholds

As a result of the announcement there will now be four rates of CSG, where previously three rates applied.

For a single person the rates and income limits are as follows:

For a couple (married or civil partnership), the rate and limits are as follows.

These income thresholds are increased for additional dependants in the household.

Exempt Pensions

In addition to those who are within the zero rated income threshold, expatriates who hold an 'E' form or S1 health certificate, or who are in receipt of a government service pension (teaching profession, local government, civil service, armed forces) are also exempt. In addition, those who are entirely covered for health by a private policy should also be able to obtain exemption. 

All such persons are entitled to 100% relief against the social charges on their pension income, although in the case of those on a government pension other pension income remains liable unless exempt under the other provisions eg, S1, low income.

Income Assessment

If you are liable, the rate that will be used will depend on your total taxable income, not merely your pension income. That is to say it will apply on your ‘Revenu Fiscal de Référence' as shown on your tax notice. This means that for a couple who are taxed on a joint base a common rate applies, irrespective if one of the spouses could have claimed a reduced rate or exemption.

The relevant tax year for assessing your liability in 2019 (for 2018 income) is your 2017 income, as stated on your tax notice for 2018!

The government are proposing that for those on the reduced rate of 3.8%, the liability to an increase in the CSG rate to 6.6% will only apply if the threshold is exceeded for two consecutive years. Thus, the benefit of the reduced rate of 3.8% is retained if the reference tax income limit is exceeded for only one year.

Those paying at the full rate who might be expecting to benefit from this announcement will need to wait until the summer of 2019 to obtain the reduced rate, following submission and assessment of your 2018 income tax return. A tax rebate will then be granted for any over-payment in social charges made since January, and the rate adjusted for the remainder of the year.

Total Social Charges

In addition to CSG, the social charges 'CRDS' (0.5%) and 'CASA' (0.3%) are also payable, although those who pay CSG at the rate of 3.4% are exempt from CASA.

This means that the total percentage of social charges payable will be 9.1% for those who pay at the full rate, 7.4% for those on the intermediate rate, and 4.3% for those who pay at the reduced rate.

Income Tax Deduction

The social charge CSG is partially deductible for income tax purposes.

For whose who pay at the rate of at 8.3% it is 5.9% deductible; at 6.6% it is 4.2%, and at 3.8% it is entirely deductible. The deduction occurs in the year following imposition.

The effect of this rule is that the non-deductible fraction of pension income is included in your income tax assessment.