Insee Analyses · April 2025 · n° 109

How could pensions be indexed to reduce the system's sensitivity to growth?

By default, pensions are adjusted in line with prices rather than wages. The reemerging inflation has thus propelled a debate on pension indexation rules.

This rule favours pensioners when an inflationary shock, particularly imported inflation, reduces real wages. In recent decades, however, it has mostly led to limiting the rise in the relative level of pensions and has significantly contributed to balancing the pension system. But the extent of this contribution is highly dependent on the pace of productivity growth, generating uncertainty about the share of pension expenditure in GDP and the future relative standard of living of pensioners. This sensitivity to growth therefore weakens the diagnosis of the system's financial outlook. The Destinie microsimulation model makes it possible to explore other indexation rules that avoid this sensitivity.

Full indexation to wages would remove this dependency but would sharply increase the share of pension expenditure in GDP.

If this is to be avoided, the reference to wages must be counterbalanced by taking direct account, through corrective coefficients, of demographic trends or of the spending target that we wish to meet. Such indexation rules would also reduce the sensitivity to growth of the share of retirees with a low standard of living, although this share is expected to rise by 2070 regardless of the indexation method considered.