Varin’s potential payout of 7.75 million euros over 25 years was called “inappropriate” by the French government given that PSA is cutting more than 10,000 jobs.

Departing PSA/Peugeot-Citroen CEO Philippe Varin said he would forego his pension package after an outcry from government ministers and labor unions. PSA has set aside 21 million euros ($28.5 million) for Varin’s pension deal. Of that total, Varin, 61, was going to get 310,000 euros a year for 25 years starting when he turned 65. Varin’s potential full payout of 7.75 million euros was called “inappropriate” by the French government given that PSA is cutting more than 10,000 jobs as it struggles to recover from a six-year European market slump.

“Given the immense respect I have for our staff and the consequences of the difficult but necessary decisions I had to take, I have decided to relinquish the present provisions of my pension package,” Varin told a news conference on Wednesday.

Varin acknowledged the “polemic and emotion” caused by his pension and said the company’s supervisory board would decide on the new terms of his departure after consulting a corporate governance advisory body in the French employers’ organization. The ministers and unions bristled at the fact that Varin, who will step down in 2014, three years before his contract ends, would receive an annual 310,000 euro pension net of tax and social charges.

PSA announced this week that Varin would be replaced next year by former Renault No. 2 Carlos Tavares in a move that may help it secure new funding from Chinese partner Dongfeng Motor. PSA and Dongfeng are in talks to build on their existing Chinese joint venture with cooperation in other markets and a multi-billion-euro share issue that could see Dongfeng and France’s government acquire stakes in the French carmaker, sources familiar with the matter have said.

In keeping with company practice, Varin will receive no severance payment when he leaves the group, unlike most of his counterparts at other major French companies. Varin has received no bonus since 2011, a PSA spokesman said, and his pension arrangements are more modest than those at other French corporations.