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Pension reforms in Austria: background summary (update March 2019)

Characteristics of the Austrian pension system

  • The pension system is based on three pillars (state pensions, occupational pensions, private pensions), in which the first pillar is by far the most important source of retirement income. Known as the statutory pension system (Gesetzliche Pensionsversicherung), it provides retirement pensions, surviving dependents’ pensions and invalidity pensions.
  • Second pillar pension schemes are ‘genuine’ occupational pensions provided by companies as a voluntary benefit (which are relatively rare in Austria) and the compulsory, statutorynew severance pay scheme’. The latter was introduced in 2002 and includes all employees who started a new job from January 2003 onwards. Under this scheme, every employer must transfer 1.53% of an employee’s monthly salary to specific staff severance pay and pension funds (Mitarbeitervorsorgekassen) which have been set up especially for this purpose.
  • The employees have a say in the choice of the fund into which the contributions are made. The government’s political intention behind this scheme was to maintain the contributions in the respective accounts until retirement age, when each individual can choose whether to receive the entire severance pay as a one-time lump sum or as a lifelong pension instead. However, when employees change jobs, and after a defined minimum length of contributions, they may also opt for an immediate pay-out of the severance pay and start to build up new entitlements in their next job. This is what the vast majority (90%) of employees do when they change jobs and meet the preconditions. As a result, the severance pay scheme is used only in a very limited way as a form of pension insurance.
  • For private pensions, public subsidies are available in a scheme called ‘premium-aided pension savings scheme’ (prämienbegünstigte Zukunftsvorsorge), which essentially forms the third pillar of the pension system. In 2012, public subsidies for this type of scheme were reduced by 50% (from 8.5% to 4.25%) and the schemes have (further) decreased in popularity.
  • Second and third pillar pension schemes have a rather limited role in terms of volume (both types) and coverage (third pillar only) in overall pension provisions.

Pension reforms in Austria since the early 2000s

  • Austria underwent several reforms to its pension system in the last 15 years, aimed at increasing the retirement age (i.e. prolonging careers and reducing forms of early retirement) in order to secure the financial sustainability of the pension system.
  • The last large-scale reforms took place in the early 2000s, when the formula for the calculation of benefits was radically changed: Instead of the former 15 ‘best’ years (i.e. those 15 years during which the highest income was achieved), the contribution base was changed to lifetime earnings. Furthermore, the accrual rate was reduced from 2 to 1.78% per year and the maximum replacement rate of 80% now has to be reached after an insurance history of 45 years instead of 40 years as was the case before. Thus, the reforms led to an overall decrease in the net replacement rate of pensions.
  • Since 2014, with the General Pensions Act, which applies to all persons born on or after 1 January 1955, every insured person under this Act has an individual pension account listing all contributions paid and all entitlements obtained. It is a collection of all data of importance for the calculation of the statutory pension.
  • Four pension insurance institutions implement the General Pensions Act, the largest of them being the insurance institution for employees (Pensionsversicherungsanstalt). In addition, there are separate social (and pension) insurance institutions for railways and mining, for the self-employed and for farmers.
  • There is a difference in statutory retirement ages between men (65 years) and women (60 years) with women’s retirement age being adjusted to that of men between 2024 and 2033 (i.e. by half a year each calendar year).
  • Forms of early retirement have been abolished or made less attractive, e.g. retirement due to very long insurance periods (Langzeitversichertenregelung) with the latest reform implemented in 2014 or the abolition of temporary invalidity pensions for persons under 50 years of age (which often substituted for other forms of early retirement), also in 2014. Instead, new legislation on rehabilitation was implemented