Pension reform in place

Despite protests by organisations representing employees, in July 2000 the Austrian parliament passed the coalition government's far-reaching new pension reform. Disputes over the new measures are very likely to continue in the future.

On 5 July 2000, the Austrian parliament passed the reform of the pensions system initiated by the coalition government of the populist Freedom Party (Freiheitliche Partei Österreichs, FPÖ) and the conservative People's Party (Österreichische Volkspartei, ÖVP) (AT0002212F). The reform consists of two elements: new pension regulations set out in the 2000 social law amendment Act (Sozialrechts-Änderungsgesetz 2000, SRÄG 2000); and additional labour market measures set out in the 2000 labour law amendment Act (Arbeitsrechts-Änderungsgesetz 2000, ARÄG 2000).

The main reform measures introduced by the new legislation are set out below. Most of the regulations enter into force on 1 October 2000.

Pension changes

Increased entry age for early retirement

The earliest age at which employees may take early retirement and receive a state retirement pension - on grounds of a long contribution history or of unemployment, or to receive a partial pension (Gleitpension) - is increased by 18 months to 56.5 years for women and 61.5 for men. The increase will be phased in over two years, with an increase of two months on 1 October 2000, followed by further two-month increases every three months until 1 October 2002.

Reduced pension levels for early retirement

At present, the pension entitlement for workers who retire before the normal retirement ages of 60 for women and 65 for men is reduced by 2% per year. This annual reduction now increases to 3%, a rise to be introduced over the period during which the entry age for early retirement is being increased - ie between 1 October 2000 and 1 October 2002.

Persons who retire after the normal retirement ages of 60 for women and 65 for men will receive a pension increment (Steigerungsbetrag) of 4% for every year worked after normal retirement age; previously, an increment of 2%-5% could be received, depending on the retirement age. If the employee's pension entitlement is already 80% of the maximum (ie 80% of the insured employee's former annual earnings up to the earnings limit liable to social insurance contributions - the Bemessungsgrundlage) the annual increment is 2%. Increments may bring pension entitlement up to no more than 90% of the maximum.

Temporary exemption provisions

Older employees in certain age groups - those born before 1950 for women and 1945 for men - may still retire from the previous early retirement ages of 55 for women and 60 for men, and without facing the new higher reductions in pension entitlement for early retirement. Periods of time off work for childcare and for military service are counted as contribution periods to pensions insurance of five years and one year respectively.

People who planned to retire early between 1 October 2000 and 1 February 2001 under the former regulations, and who will consequently quit employment between 31 August 2000 and 31 December 2000, may still retire from the previous early retirement ages, and without facing the new higher reductions in pension entitlement for early retirement.

Hardship cases

The pensions insurance institutions are entitled to give financial assistance to people who find themselves in a situation of hardship due to the higher early retirement age. For this purpose, the pensions insurance support fund (Unterstützungsfonds) had been increased by 50% to ATS 250 million.

Reduction of invalidity and disability pensions

Under the old legislation, special measures applied to invalidity pensions (which apply to blue-collar workers) and disability pensions (which apply to white-collar workers), if this pension was less than 60% of the maximum. Instead of the usual methods of calculating pensions (see above), a more favourable formula was applied, with those concerned having their pension entitlement increased by 1.8% per year of missed contributions. The reform determines that the rate of increase will reduced from 1.8% to 1.72% over 2001-4. By 2005, only the general pension calculation methods will be applied to this group.

Reduction of widow and widower pensions

From 1 October 2000, widows and widowers will receive between 0% and 60% of the deceased spouse's pension, rather than the previous 40%-60%. In addition, the formula for calculating the pension of widows and widowers will be considerably worsened, leading to substantial cuts in pensions.

Labour market measures

The pensions reform is accompanied by several labour market measures aimed at supporting the employment of older workers.

Unemployment insurance

Changes in the area of unemployment insurance include the following:

  • from July 2000 to 2002, certain age-groups are entitled to receive unemployment benefits for a prolonged period (78 weeks), if they have made contributions to the unemployment insurance scheme for 15 years out of the previous 25;
  • the duration of unemployment benefits for people over the age of 45 participating in training organised by the National Employment Agency (Arbeitsmarktservice, AMS) will be extended. This measure is temporary, running from 1 October 2000 to 31 December 2003; and
  • the level of financial assistance for training leave (Weiterbildungsgeld bei Bildungskarenz) will increase. This measure is also temporary and will be abolished by 31 December 2003.

Incentives and disincentives

Employers which hire people over the age of 50 will not have to pay the employer's contribution to unemployment insurance in respect of such employees (3% of gross income). Until now, this "bonus" applied to employment of people aged 55 or older.

The reform also introduces a disincentive ("malus") scheme, whereby employers which dismiss an employee over the age of 50 who has been employed for 10 years, have to make payments to the unemployment insurance system. This payment starts at 0.2% of the employee's gross income for 50-year-olds and increases with every three years of age up to the maximum of the current employer's contribution to unemployment insurance (3% of gross income). Additionally, if the employer does not report the dismissal of older workers to the AMS (see below), the disincentive payment increases by 30%.

Early-warning system on dismissals of older workers

Companies are now obliged to report all dismissals of workers over the age of 50 who have been employed in that company for at least six months to the AMS at the time of the dismissal. The AMS must take measures in order to find employment for the worker concerned in the company concerned or elsewhere.

Part-time work for older workers

The existing part-time work for older workers scheme (Altersteilzeit) involves reducing the working hours of an older worker, who receives partial compensation for the loss of income from the employer. The latter is then reimbursed by the unemployment insurance system for this purpose (Altersteilzeitgeld). The relevant legislation has been changed in several ways, most notably as follows:

  • the scheme may apply to women from the age of 50 and to men from the age of 55, until the new early retirement age (56.5 and 61.5 respectively), which means that part-time works can be agreed for 6.5 years;
  • the new rules require a reduction of the hours of full-time workers by 40%-60%, and a reduction of the hours of full-time workers by at least 80%;
  • the compensation for loss of income must amount to at least 50% of the difference between the former income and the new part-time income;
  • the employee's earnings for the purpose of calculating social insurance and severance payments remains the same as before switching to part-time employment;
  • participants in the scheme are required to have made 15 years of contributions to unemployment insurance within the previous 25 years;
  • the obligation on employers to employ a substitute worker to cover the hours freed by a worker participating in the scheme is abolished;
  • the whole of the period of part-time employment is included in the period for determining pensionable earnings;
  • the employee's working hours may be unequally distributed over the period of part-time employment; and
  • the new regulations will apply until 31 December 2003.

Contesting dismissals

The employment contracts adjustment Act (Arbeitsvertragsrechts-Anpassungsgesetz, AVRAG) is amended to provide new rules on employment protection for older workers. Older employees in certain age-groups who are employed in a company with fewer than five workers may now contest a dismissal in the courts within one week of the announcement of the dismissal, if the dismissal is seen as "socially unjustified" and the worker has been employed in the company for at least six months. The dismissal is regarded as "socially unjustified" if it injures the "essential interests" of the employee.

Reactions

The pensions reform and the supplementary labour market measures were vigorously opposed by the organisations representing employees - the Austrian Trade Union Federation (Österreichischer Gewerkschaftsbund, ÖGB) and the Chamber of Labour (Bundesarbeitskammer, BAK).

According to BAK statistics on the employment status of older workers before they reach early retirement age (see the table below), 34% are unemployed and 12% are ill. The government's reform will, in the view of the employee's organisations, worsen the position of these people, as they will be forced to remain employed or unemployed for longer. This worsens the employment situation of other groups, such as older persons seeking re-employment. Furthermore, the higher entry age for early retirement and the higher pension reductions in the case of early retirement are argued to involve a "breach of confidence" in the existing legal regulations. Many people will be adversely affected by these measures, especially if they do not have the opportunity to work until they reach the entry age. In the view of BAK, the supplementary regulations which cover the settlement of hardship cases are not sufficient to re-establish confidence.

Employment status of older people before reaching retirement age, 1999
Status Number %
Employed 27,600 47
Unemployed 20,500 34
Sick 7,400 12
Others 4,000 7
Total 59,000 100

Source: BAK.

Regarding the new labour market regulations aimed at supporting the employment of older workers, BAK also questions various aspects. For example, only half of all employees in the relevant age group are still employed, while the others are mostly unemployed or ill. Many important new measures are only temporary and are restricted to very few age-groups. In the view of BAK, the funding of the proposed measures is still unclear. In order to implement the pension reform and the labour market initiatives, it might be possible that a redistribution of funds will take place to the disadvantage of other supported groups.

ÖGB has brought a complaint of unconstitutionality before the Constitutional Court, because the pension reform is seen as breaching confidence in legal regulations. In addition, ÖGB regards the government's reform as a redistribution from workers to companies, the self-employed and agriculture.

Commentary

The pension reform was pushed through under time pressure by the government, since the incidence of early retirement has increased considerably in recent years. The need for a reform is widely accepted by the social partners, but the appropriate measures to be taken are hotly debated between the government and the organisations representing employees. Despite a protest strike by transport workers and the threat of further industrial action (AT0007225F), the government did not change its policy and seems committed to proceeding with its reform plans. Conflicts about this issue are very likely to continue, since some government experts regard this new reform as insufficient to stabilise the pension system in the future. (Angelika Stueckler, University of Vienna)

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