Austria Expat Pensions

The Austria pension system has three Pillars:

• Pillar 1: State Pensions;
• Pillar 2: Occupational Pensions;
• Pillar 3: Private Pensions & Wealth.

Typical for the Austria system is that:

• Their system is set up to preferentially benefit poorer pensioners than those who are well off.
• Private and Occupational Pensions are secondary to the State Pension;
• Private Pensions are mostly provided by individual insurance plans.

Typical for the funding of the Austria system is that:

• Pillar 1 is financed by Tax (20 %) and by Social Insurance Premium (80 %).
• Pillar 2 is financed by employer/employee contributions and based on Collective Bargaining Agreements.
• Pillar 2+3 are both funded.

I. Qualifications

Retirement Pension

In order to be entitled to the standard old age pension, you have to complete a certain minimum pension insurance period in Austria.

Persons who had not reached the age of 50 and had no insurance period by 1 January 2005 have to complete 180 months of insurance, at least 84 of which have to be accumulated due to occupational work.

Persons who reached the age of 50 by 1 January 2005 have to complete 180 months of insurance over the past 360 calendar months or 180 months of contributions or 300 months of insurance cover without any reference period.

Persons who had not reached the age of 50 by 1 January 2005 but had accumulated at least one month of insurance, will benefit from the most favourable arrangement.

Certain periods for which publicly funded contributions are paid are also recognised as contribution periods:

• Child-raising periods for a maximum of four years per child;
• Periods of military service and assimilated periods;
• Periods of maternity leave when maternity benefit is received;
• Periods when unemployment benefit or sickness cash benefit is received.

Early Retirement Pension

You can claim Corridor Pension as of age 62 if you have completed 40 insurance years. Which applies only to men due to women’s (still) lower standard retirement age.

Heavy-labour pension may be claimed at the age of 60 for persons performing heavy work, provided they have done this for at least 10 years out of the preceding 20 years and have completed at least 45 insurance years.

Finally, if a person starts to work again, already active early retirement pension pay-out will be suspended.

II. Funding

The state pension system has a pay-as-you go nature which is financed by employer and employee contributions. These amount to 10,25% of earnings for employees and 12,55% for employer contributions.

III. Benefits

Retirement Pension

Individual benefits are calculated by using a person's 18 highest-paid years, the length of insurance contributions and retirement age.

Benefits can amount to as much as 80% of an individual's average lifetime earnings if contributions have been made for at least 45 years (including a maximum).

The amount of the standard old-age pension is calculated taking into account the claimant’s age, length of insurance period and the amount of contributions paid by the claimant.

For persons below the age of 50 at 1 January 2005, a benefit-defined pension account system based on current-income financing (“pay-as-you-go”) is in force.

Under this system, pension entitlements acquired are calculated each year. The basis for calculation is the average income in a calendar year, subject to a maximum. For each calendar year 1,78% of this amount is credited to the pension account.

For persons who had reached the age of 50 by 1 January 2005, the legislation applicable by the end of 2004 still applies. The pension calculation basis is the average income of the 26 best insurance years. This period will be gradually increased to 40 years of insurance by 2028. For each insurance year 1,78% of the calculation basis is credited to the pension account.

Pensions from 1 January 2004 onwards may be no more than 5% lower than the comparable pension at 31 December 2003. This figure will be gradually increased to 10% by 2024.

Early/Later Retirement Pension

If you take early retirement, your pension is reduced by 4,2% a year. The reduction for corridor pension is 5,1% and for heavy labour pension it is 1,8%. In total your pension is reduced by not more than 15%.

If retirement is deferred, the pension will be increased by 4,2% per calendar year up to a maximum increase of 12,6%.

Compensatory Supplement

If your monthly pension, including other income, is below certain reference levels, a compensation supplement is paid to the level of the difference between your income and the reference level.

Other income includes income from a spouse living in the same household. This supplement may be increased in case of dependent children. If you are in need of care, long-term care benefit may also be provided.

Pay-Out

Pension is paid on application only and it is paid in 14 annual instalments.

Your April and October pension instalments include a supplement.

IV. Retirement Age

The official retirement age is age 65 for men and age 60 for women, which will be gradually raised to 65 between 2024 and ending in 2033.

Early retirement is an option as of age 62. This will result in a lower annual pension due to a discount for each year of retirement before age 65.

I. Participation

Compared to most European countries, occupational pension plans are a rare phenomenon in Austria. This applies to the number of people eligible for a company pension as a percentage of overall labour market participants as well as the share that company pensions contribute to overall incomes of elderly households.

Whereas in Europe in general every second worker is included in an occupational pension plan, in Austria just one in six dependently employed persons is entitled to claim a workplace pension.

In countries where occupational pension plans are firmly established, about a 33% of retirement income comes from such a plan. In Austria it is just 2%.

II. Structure

Employers can choose from five type of Pension Providers:

• 1] Pension Funds;
• 2] Occupational Collective Insurance;
• 3] Internal Book Reserves;
• 4] Support Funds;
• 5] Direct Insurance.

Before the creation of Pension Funds, workplace retirement benefits were nearly always financed by internal balance sheet reserves. Most companies have now transferred their pension plans to Pension Funds. SME’s are also more interested in Pension Funds.

III. Pension Funds/Pensionskassen

Pension funds have to be established in the legal form of a joint-stock company. It can be distinguished between Multi Employer Pension Fund (MEPF) and Single Employer Pension Fund. (SEPF)

Multi Employer Pension Funds are not limited to a company but can offer occupational retirement provision to every firm interested. These funds have been established in order to allow smaller companies to also make use of this funding vehicle as at least 1.000 beneficiaries are required to set up a Pension Fund.

Pension funds are mainly subsidiaries of insurances and banks. Today there are 5 Multi Employer Pension Funds and 3 Single Employer Pension Funds. The Single Employer Pension Funds developed steadily. Single Employer Pension Funds are limited to a certain company with regard to offering the occupational retirement provision.

The pension fund model is the international recognised model for securing retirement provision as it yields a good return in the long run, offers high safety, transparency and the right for co-determination for the company and for the beneficiary.

IV. Occupational Collective Insurance/Betriebliche Kollektivversicherung

Occupational collective insurance plans must provide a minimum return guarantee and must not be Unit/Index-Linked. Thus a guaranteed pension amount is contractually fixed.

A conversion to a Pension Funds would probably result in lower returns but higher collateral. This type of occupational pension i.e. transforms a life insurance policy into a pension solution.

V. Internal Book Reserves

The most remarkable aspect of this kind of coverage is that the pension claim is not externally guaranteed.

In case of Internal Book Reserves the employer’s company functions as the pension provider. This is by the way a completely legally binding pension claim. Which we do not only see in Austria but also in for example Germany.

One of the conditions related to allowing the Internal Book Reserves is that at least 50% of a company’s Internal Book Reserves has to be secured by Governmental Bonds. This as a risk reduction and security. Still there remains a very substantial risk.

Internal Book Reserves are tax-deductible and not treated as taxable income for the participants.

VI.Support Funds/Unterstützungskasse

Support Funds are completely self supporting legal entities that don’t grant a legally enforceable right to the beneficiary. They are only allowed to provide very modest benefits.

Furthermore you can’t make tax-deductible contributions to a support fund during active employment. Thus it is understandable that Support Funds are getting less popular in Austria.

VII. Direct Insurance

Direct Insurance means that the employer pays pension premiums to a Life Insurance Company which funtions as the pension provider. The benefits go directly to the employee.

About 10% of occupational pension plan participants are covered by Direct Insurances.

Premiums are tax-deductible for the employer. However, they are taxable income for the employee if they exceed € 300,- per person each year.

VIII. Retirement Age

The official retirement age is age 65 for men and age 60 for women, which will be gradually raised to 65 between 2024 and ending in 2033.

Early retirement is an option as of age 62. This will result in a lower annual pension due to a discount for each year of retirement before age 65.

One can take out a private pension but this is rarely done due to the dominance of the public pensions.

If you might want to increase your coverage by means of a private plan, you will see many different types which are offered by insurance companies like Allianz and Cigna Global.

Please be critical when comparing different plans and check these parameters:

• Amout of one time/annual tax benefits;
• One time premium versus annual premium;
• One time/annual cost level;
• Pay-out flexibility;
• Next of kin coverage;
• If investment based, the level and variety and costs of investment funds.

I. FMA: Financial Market Supervision

The FMA is Austria’s independent integrated supervisory and resolution authority. Their overall perspective of the Austrian financial market enables them to conduct consistent and efficient supervision. They are part of the European System of Financial Supervisors (ESFS).

They pursue the aims of contributing towards the stability of Austria as a financial market and reinforcing confidence in the ability of the Austrian financial market to function, while acting in a preventive manner with respect to compliance with supervisory standards and also protecting investors, creditors and consumers alike.

They use a risk-based and solution-oriented approach to address complex issues and apply their knowledge in a target-oriented manner in the interest of integrated supervision.

The goal of their Solvency Supervision is to ensure that the banks, insurance undertakings and financial service providers are able to pay out at all times and to meet their obligations.

The Department of Insurance and Pension Supervision includes the continued supervision of all business activities of insurance undertakings and Pensionskassen, including:

• On site inspections;
• Proposals for development of legislation towards insurance/pension supervision;
• Sending representatives to international bodies;
• Licensing issues and legal supervision.

II. FMA Pension Fund Supervision

The FMA supervises Pension Funds. The tasks of the FMA include granting licences for pension company activities and monitoring ongoing business operations.

The FMA monitors Pension Funds to ensure compliance with the provisions of the ‘Pensionskassen Act’. The FMA is obliged to consider the interests of the Austrian economy in a functioning pension company system as well as the interests of persons entitled to receive benefits from a Pension Fund in future or already receiving such benefits.

Licensing of Pension Funds

Austrian Pension Funds are entitled to carry out activities only under a licence granted by the FMA. For the licence to be granted, certain requirements have to be met:

• Sufficient equity capital;
• Business plan meeting approval;
• Suitability of management board members and shareholders;
• Legal form of a joint stock company (AG).

Institutions for occupational retirement provision that are licensed in a Member State of the EU/EEA are also entitled to pursue pension company activities in Austria. Then the supervisory authority of the home Member State is responsible for the supervision of activities carried out in Austria.

Monitoring Pension Funds Operations

The most important supervisory activities of the FMA include:

• Analysis of developments in the pension market and of individual Pension Funds;
• Review of compliance with rules regarding:
  – the investment limits;
  – the cover of technical provisions;
  – the own funds requirements.

III. More Information

For more information about the FMA please visit: https://www.fma.gv.at/en/

The official retirement age is age 65 for men and age 60 for women, which will be gradually raised to 65 between 2024 and ending in 2033.

Early retirement is an option as of age 62. This will result in a lower annual pension due to a discount for each year of retirement before age 65.

Regarding the starting age of retirement there is flexibility in the range of age 62-65 for men and standard age 60 for women.

Regarding the manner of pay-out it is only based on annuity bases and no Lump Sum or Flexi Draw Down. (An exception is a possible Lump Sum pay-out of a small amount of occupational pension claim.)

I. Taxation Of Pensions

Residents in Austria are subject to Austrian income tax on their worldwide income, including income from pensions.

Non-residents are taxed on income from certain sources in Austria only. Non-residents are subject to income tax on Austrian-source income at normal rates.

II. Income Tax Rates

General

The 2021 tax rates have the following structure:

Taxable Income                                                   Tax Rate

• €           0,-        -           €       11.000,-                0        %
• € 11.001,-       -           €       18.000,-              20        %
• € 18.001,-       -           €       31.000,-              35        %
• € 31.001,-       -           €       60.000,-              42        %
• € 60.001,-       -           €       90.000,-              48        %
• € 90.001,-       -           € 1.000.000,-              50        %
• Above € 1.000.000,-                                       55        %

III. International Tax Aspects

If you receive pension pay-out from another country than the country where you retire, then it is advisable to see if there is a Double Tax Treaty in order to prevent or mitigate double taxation in the residenital country and at source.

If there is no such treaty, you can only appeal to unilateral rules in order to try to prevent the effect of a possible double taxation.

I. State Pensions

Expats living in Austria can receive State Pension from another country and vice versa. State pension claims can never be transferred to another country.

II. Occupational Pensions

Expats living in Austria can receive Occupational Pension Claims from another country and vice versa.

A transfer of a pension claim to another plan in another country is not always possible. Within the EU context we hope that due to action of the EU (by taking The Netherlands to EU Court for not making such a transfer possible) that these kind of transfers will be always possible in the near future.

III. Tax

If you receive pension pay-out from another country than the country where you retire, then it is advisable to see if there is a Double Tax Treaty in order to prevent or mitigate double taxation in the residenital country and at source.

If there is no such treaty, you can only appeal to unilateral rules in order to try to prevent the effect of a possible double taxation.

Expats with a UK Occcupational Pension Claim often hear that it is very attractive to transfer their UK claim to a QROPS pension plan.

QROPS stands for ‘Qualifying Recognised Overseas Pension Scheme. A QROPS is an overseas pension scheme that HM Revenue & Customs (HMRC) recognises as eligible to receive transfers from registered pension schemes in the UK.

The initial idea of a QROPS was to get the value out of the UK without paying any UK tax on the transfer value. Which is now not always possible.

To qualify as a QROPS the scheme must meet the requirements set by UK tax law. For example being available to residents in that country and not being accessible before age 55 unless under special circumstances.

If you are interested in such a QROPS transfer, please make sure that a specialist looks into all relevant aspects. Among which there are the following questions:

• Would it result in a much lower tax exposure or would it increase substantially?
• Are the related QROPS costs not too high?
• Is the related transfer capital big enough to earn back the extra costs?
• Are the available investment funds of a quality level?
• Does your advisor have financial benefit from such a transfer by getting a percentage of the transfer value? (For Dutch advisors this is prohibited by law, fortunately.)

Austria: No change in retirement system expected before 2033

The Austrian government has finally found a new head for its pensions advisory board. Christine Mayrhuber took over the position this month from its former head Walter Pöltner. Back then Pöltner dislcosed he was resigning “in frustration” because politicians did not take the long-term financing of pensions or of care work seriously enough.

Mayrhuber is deputy director at the Austrian Economic Research Institute (Wirtschaftsforschungsinstitut, WIFO). She is the first person with a scientific background to head the committee, which is made up of politicians, representatives of ministries and social partners. The new commission head told Austrian media she would not expect any reforms to the country’s pension system before 2033. 

That is the year when the currently ongoing increase to the retirement age for women will be finalised. The statutory retirement age for both sexes will by then be 65 years from currently 65 for men and 60 for women. Mayrhuber noted that after that point in time it might be considered to increase the deductions to pensions withdrawn before the statutory retirement age.

Deadline Extension Adds Doubt To Austrian Pension Commission’s Role

The deadline extension granted to the Austrian pension commission to present a report that will assess the progress of the national pension system has added scepticism to the organisation’s role and already troubled history.

Andreas Csurda, member of the management board at Allianz Pensionskasse, told IPE that it “is difficult to understand” the fact that the deadline had been extended, “despite the difficult time we are currently facing”.

The Alterssicherungskommission replaced another organisation –the commission for long-term pension protection, or Kommission zur langfristigen Pensionssicherung – that concluded its mandate at the end of 2016.

The new commission, which includes experts to help define the long-term financial sustainability of the Austrian pension system, was only founded in 2019. “A lot of valuable time has already passed,” said Csurda, referring to the four-year gap since the previous body ceased.

On 8 July, parliament approved an amendment to the law on the pension commission, or Alterssicherungskommissions-Gesetz.

Under the new rule, the deadline for the commission to submit to the government its first long-term assessment of the development of the country’s pension system was extended by four months, from November 2020 to March 2021.

According to the legislator, the extension will ensure the analysis is not based on outdated numbers or economic forecasts against the backdrop of the COVID-19 pandemic.

The MP’s said the economic forecast for the report will likely not be available until the end of August and it will rely on outdated data based on an estimate from April 2020.

The deadline extension could ensure a higher consistency between the medium and long-term reports, the MP’s said in their motion, adding that it took into account a request of the chair and the deputy chair of the commission.

Reform Willingness Questioned

The pension commission finally had its first official meeting in November 2019 after numerous attempts to find a leader.

Its chair is Walter Pöltner, former minister for social affairs, while Ingrid Korosec, member of the ÖVP, is vice chair.

“As an observer, I have hardly noticed any willingness [from the commission] for a reform over the past few years,” Csurda said, adding that a balance between the representatives of the three pillars of the pension system was missing.

“The commission only includes representatives of the first pillar, while the second and third pillars, namely company pensions and private pensions are, so to speak, left out. A holistic view would certainly be desirable,” he said.

He added that the Alterssicherungskommission is the commission for the long-term financing of the pension system – “this does not only mean responsibility for the first pillar, the statutory pension.”

Discussions could erupt on a rule for early retirement and criticised by experts.

The so-called “Hacklerregelung”, a long-term insurance pension, allows men to retire at 62 after 540 months of contributions, which corresponds to 45 years, and women at 57 with 42 years of contributions.

Csurda, who generally thinks that employees should be able to retire early, shares the opinion of the commission on the matter and would welcome a reform.

“The question is whether [retiring early] should come with reductions. In my view, it is fair and legitimate that there are reductions for the statutory pension for person A who retires x years earlier than person B.”

Csursa supports the so-called Korridorpension, which calculates reductions for early retirement.