Pension reform nears completion

Following the adoption of legislation in November 1997, a gradual reform of pensions will take place in Austria between 1998 and 2020, covering virtually all economically active groups. Only the pensions of railway employees remain to be renegotiated. The effects of the new measures, which were aimed particularly at early retirement, are thought to be very limited.

Austria's pension reform is now almost complete (AT9707118F). Below, the main features of the reform as they affect civil servants and employees are reported. The pensions schemes for farmers and employers have also been reformed, but are not reported here.

Employees

Parliament passed legislation reforming employees' pensions on 6 November 1997. The main points are as follows:

  • in cases of early retirement, the reference period over which incomes are averaged in order to arrive at the basis for calculating pensions will be lengthened from the 15 best years of income to the 18 best years. This will be effected gradually between 2003 and 2020. The maximum loss of pension entitlement is limited to 7%;
  • from 2000, early retirement will be penalised by a reduction of two percentage points in the amount of pension for every year between the age of early retirement and the normal retirement age. The maximum reduction is 10 percentage points - from 80% of average income to 70%, for instance;
  • for pension purposes, periods spent child-rearing are attributed a notional monthly income. From 2000, this will be raised from the current ATS 6,500 to ATS 7,887;
  • persons who have given up their job in order to nurse a close relative in need of assistance will be able to contribute to pension insurance at 10.25% of their contribution base assessment, instead of the current 22.8%;
  • "minor employment" - earnings below ATS 3,740 gross per month - used to be exempted from social security contributions. From 1998, employers will have to pay the normal 12.55% pension insurance contribution, as soon as the establishment's monthly paybill exceeds ATS 5,610. Employees will not be compelled to make their individual 10.25% contribution, but will have the option of doing so. In addition, health insurance contributions will also have to be paid by the employer. If two or more minor employment contracts together exceed the pay limit of minor employment, the employee will automatically be liable to pay social security contributions; and
  • the self-employed who deliver their services personally and without the use of their own means of production will from 1998 be treated as if they were regular employees for pensions purposes, and taken into the general pensions system. For artists, this takes effect in 2000.

In 1998, all pensions will be raised by 1.33%.

Civil service

Parliament passed legislation reforming civil service pensions on 4 November 1997. The main points are as follows:

  • a base period over which relevant incomes will be averaged for calculating pensions will be introduced between 2003 and 2020. It will be 15 years for normal retirement and 18 years for early retirement;
  • pension losses from the introduction of the base period will be limited to 1% in the case of pensions below ATS 10,000 per month, increasing to 7% for pensions of ATS 28,000, and 12% for pensions over ATS 42,000. From 2003, the government will adapt these limits annually in order to avoid any hardship;
  • civil servants who are due to retire after 2020 will from 2000 pay reduced pension contributions - 10.25% instead of the current 11.75%;
  • early retirement will carry a pensions penalty of two percentage points per year below normal retirement age. For police officers, depending on the number of years spent on patrol duty, the reduction will only be between 0.8 and 1.4 points; and
  • civil servants who have taken early retirement will have their pensions cut if they earn extra income above ATS 3,740 per month, and if the pension together with the extra income exceeds ATS 12,000 per month below the age of 60, or ATS 18,000 below the age of 65.

The negotiations over the civil service pension reform were long and arduous, and continued until the evening before Parliament voted on the bill. At various times strikes and other protests took place or were threatened.

Railways

One part of the pension reform still remains to be accomplished, and poses serious legal and political problems: the pensions of railway employees. In 1997, the Government is spending ATS 15,600 million on railway pensions. It wants to reduce or at least to contain the cost by introducing a number of measures (though no early retirement penalty is planned):

  • the introduction between 2003 and 2020 of a 15-year base period for the calculation of pension amounts;
  • for those retiring under the age of 65, this base period would be 18 years; and
  • curtailment of the right to earn other incomes parallel to receiving the pension.

Currently, railway employees who were hired before 1995 usually retire after 35 years' service - ie at the age of 53 - receiving 83% of their final salary as pension. Railway employees pay 13.25% of their salary into the pension insurance fund if they earn less than ATS 39,000 per month, and 14.25% if they earn more. From 1 July 1999 these contributions will rise to 14.25% and 15.25% respectively. Pensioners themselves also have to pay a deduction towards the pension fund which from 1 July 1999 will be raised to 3.25% or 5.25% if the pension is above ATS 39,000 per month. There are currently 73,000 railway pensioners and 55,000 employees with a future entitlement.

There is a legal problem with changing railway pension entitlements, because they are enshrined in individual employment contracts rather than the law or a collective agreement.

Three ministers were appointed as the Government's negotiating team on the railway pensions issue, indicating that the barely veiled threats of disruption from the Union of Railway Employees (Gewerkschaft der Eisenbahner) are being taken seriously. The union hopes to delay negotiations as long as possible, since it has clearly stated its intention to maintain the status quo. On 5 and 6 November 1997, works council elections were held at the Federal Railways, in which the incumbent Social Democrat slate secured 82.6% of the vote.

Commentary

The role of the social partners in bringing about the pension reforms was eminent and they succeeded, in particular, in moderating the Government's aspirations. In this they were united, since both employers and labour had to protect the interests of core groups. According to experts, little remained of the original reform plans: the retirement age of women was not raised to that of men; the base period was not extended to 25 years (regardless of early or normal retirement); and the early retirement deductions are not five percentage points per year. Estimates have been presented indicating that pensions, including those for early retirement, will essentially remain untouched. This may mean that pension contributions will have to rise between 40% and 50% until 2030, when the pension burden is expected to peak, instead of about 62% without the reform. In the "competition" between reducing early retirement for the sake of the pension system's finances, and using early retirement as a measure to reduce or conceal unemployment, the latter aim clearly remained dominant. A limited equalisation of pension entitlements between employees and civil servants was, however, achieved. (August Gächter, IHS)

Useful? Interesting? Tell us what you think. Hide comments

Eurofound welcomes feedback and updates on this regulation

Tilføj kommentar