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WORKING IN AUSTRIA

Five things you need to know about the Austrian pension system

Navigating the pension system as a foreigner can be tricky, especially if you don't know how long you will stay in Austria. To make the process easier, here's what you need to know.

Published: 2 January 2023 13:54 CET
Updated: 12 June 2023 12:56 CEST
Five things you need to know about the Austrian pension system
Brexit ended the easy movement of pensions between the EU and UK - something you'll need to keep in mind if you move back. (Photo by Centre for Better Ageing / Pexels)

Austria’s pension system is compulsory

Austria has a compulsory pension system for all employed people, including those that are self-employed. However, to qualify for a state pension, you need to contribute to the Austrian welfare system for 15 years. 

Early retirement is possible, as long as you have contributed for 15 years, but pension payments will be smaller until the age of 65. Alternatively, people can receive a bonus for working longer.

FOR MEMBERS: EXPLAINED: How does the Austrian pension system work?

The Austrian pension system is basically a pay-as-you-go scheme with 10.25 percent of an employee’s gross salary paid towards pension contributions. Employers then contribute a further 12.55 percent towards an employee’s pension.

For self-employed people in Austria, pension contributions are part of the overall social security payments to the Social Insurance Institute for Self-Employed Persons (SVS).

There are three different types of pension

In Austria there are three pillars to the pension system: state, occupational and private. 

Anyone can claim a state pension in Austria as long as they meet the required age and the number of years of contributions within the country. But the amount a person receives depends on how much has been paid into the individual pension account.

Occupational pensions (second pillar) are not mandatory and involve making additional contributions. They are designed to help people continue with a certain standard of living into retirement.

Private pensions, or the third pillar, were introduced in Austria in 2003 to promote private investments for retirements, as well as the Austrian capital market. This type of pension is typically offered by way of annuity insurance and pension investment funds.

READ MORE: Five reasons to retire in Austria

Pensions from overseas can be transferred to Austria 

For any EU citizens planning to retire in Austria, a state pension from another EU country can be transferred to a bank in Austria. But the amount you receive will depend on the rules in the country that pays the pension.

Austria also has social security agreements with countries outside of the EU, such as the US, Canada, Australia, Serbia, Bosnia and Herzegovina, and Israel. But most agreements are linked to employment in Austria.

For people from the UK, there is the option to transfer a pension into a Recognized Overseas Pension Scheme (ROPS), which allows pension funds to be consolidated together into one plan.

However, as with all things related to finance, it’s recommended to seek advice from a financial expert when it comes to moving pension pots overseas.

Austrian pension contributions count in other countries

EU law states that years of pension contributions in Austria also count in another EU country. The same applies to any agreements that Austria might have with non-EU countries.

This means if you live and work in Austria for several years before moving to another EU country, the qualifying years in Austria will be taken into account when claiming a pension in the future.

READ ALSO: EXPLAINED: Everything you need to know about retiring in Austria

However, you have to apply to the pension authority where you are living or where you last worked. That country is then responsible for bringing together the claims from all the countries where you have worked.

Despite Brexit, the UK has an agreement in place with Austria so that years of paying into the Austrian pension system still count as qualifying years for the British state pension.

The Austrian state pension age is rising

The pension age in Austria is currently 65 for men and 60 for women, but this will change in the coming years. 

Between 2024 and 2033, the state pension age for women will rise to 65, in line with the age for men.

This also aligns with other European countries like France, Germany and Italy where the state pension age is the same for both men and women. 

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For members

WORKING IN AUSTRIA

Why are people in Austria paying more taxes despite federal reforms?

Workers in Austria are still among those with the highest tax burdens in the world, with the taxes and contributions taking more than 40 percent of wages even as the country introduced sweeping tax reforms.

Published: 26 April 2024 12:21 CEST
Why are people in Austria paying more taxes despite federal reforms?

It’s often said that Austria is a country with high quality of living and high taxes, but a new OECD study shows just how high the tax burden is here compared to other OECD countries.

According to the report, Austria has the third-highest tax burden on workers and the so-called “tax wedge”, how much of a worker’s wage is taken by the government,  increased as well.

According to the OECD, in most countries, the increase in labour taxation was primarily driven by increases in personal income tax.

This is because nominal wages increased in 37 out of 38 OECD countries as inflation remained above historic levels. However, since most of these countries do not have automatic indexation of tax systems, high inflation tends to increase workers’ tax liabilities by pushing them into higher tax brackets. 

However, Austria’s federal tax reforms removed this in the country in 2023. This means that once inflation rises, the tax brackets that define how much taxes you will pay on your income will also rise – and they have risen in 2023 and in 2024 since the change. 

The measure was known as the “end of the cold progression” in Austria and should have protected workers’ incomes from inflation losses.

READ ALSO: The tax benefits that parents and families receive in Austria

What is the tax ‘wedge’?

The OECD defines a tax wedge as “income tax plus employee and employer social security contributions, minus cash benefits.” 

In other words, if an employer has a labour cost of €100, how much will they actually see in their pockets, and how much of this goes to the state? According to the organisation, the percentage is the tax wedge.

In Austria, €100 earned by a single employee without children was taxed at an average of €47.2 last year. The amount was only smaller than in Germany (47.9 percent) and Belgium (52.7 percent) and it rose compared to the previous year when it was still at 46.9 percent.

The average of the 38 OECD countries was 34.8 percent.

Married single-earner couples with two children also have high tax burdens, with a tax wedge of 32.8 percent (OECD average: 25.7 percent), which is the eleventh-highest tax and contribution burden within the OECD for this group (2022: 13th place). For married dual-earner couples, the wedge was 40.6 percent.

The tax wedge for individuals or households with children is generally lower than those without children, as many OECD countries grant households with children a tax advantage or cash benefits.

READ ALSO: Why it’s worth filling in your annual tax return in Austria

Why is Austria’s tax burden higher this year?

Despite the tax reform presented by the government, Austria’s tax wedge has increased compared to the year before. 

The reason is the relief granted in Austria in 2022 in the form of one-off state payments. With the rising cost of living, the federal government released several temporary measures to help people in the country cushion the effects, including the popular €500 Klimabonus payment every person who had been a resident of Austria for at least six months was entitled to. 

These payments and increases in family allowances reduced the tax burden in 2022 – but they no longer exist or were drastically cut in 2023. Because of that, the tax burden is rising again. 

“The abolition of cold progression and the other measures have merely prevented the tax burden from rising more sharply,” Wifo economist Margit Schratzenstaller told Der Standard.

The report said the increased tax issues show that there is still a need for action. Compared to other industrialised countries, Austria’s tax burden on work for a single person without children is ten percentage points higher. Of course, the expert noted, the fact that many industrialised countries have a different social system with fewer publicly funded benefits also plays a role here. However, labour is also expensive in Austria compared to the EU average.

READ ALSO: What foreign residents in Austria should know about taxes

“The fact that the tax burden on the middle classes has increased is due to the government’s failure. Instead of structural relief, there have been one-off payments that have evaporated,” said Lukas Sustala, head of Neos-Lab, the think tank of the liberal opposition party.

NEOS representatives have urgently called for a ‘comprehensive tax reform’ to alleviate the heavy labour burden, with a significant reduction in non-wage labour costs, according to an ORF report.

In addition, NEOS proposes the creation of ‘tax incentives for full-time work’ – including a full-time bonus and tax exemption for overtime pay. Simultaneously, NEOS aims to eliminate ‘part-time incentives of any kind’, offering a potential boost to the economy and workers’ incomes.

Economist Schratzenstaller also recommends action: She suggests reducing social insurance contributions, for example, for health insurance companies. However, it’s important to note that intervening in this area could affect the largely autonomous financing of Austria’s healthcare system, which is funded mainly through workers’ and companies’ payments via social insurance contributions. 

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