If you work in Austria, you’re probably aware that your pension contributions go to the state system – and that’s often it.
Austria’s public pension model is generous by international standards, but it comes at a huge cost to taxpayers.
This year alone, more than €30 billion will be needed in additional government funding to keep the system running, according to a Die Presse report. By 2025, €19.5 billion will be allocated to topping up general pension funds, in addition to another €13.4 billion for civil servants’ pensions.
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Why is reform needed?
Compared to countries like Denmark or the Netherlands, Austria’s second pension pillar – occupational pensions, or those connected to employment – is underdeveloped.
Only about one million people in Austria have a supplementary company pension. That’s around a quarter of the workforce. Andreas Zakostelsky, Chairman of the Association of Pension Funds, told Der Standard that if Austria had a similar system to Sweden or Denmark, the total value of funded pensions would be between €500 and €900 billion, instead of the current €50 billion.
What exactly is changing?
The idea is to strengthen company pension schemes (Betriebspensionen) so that they become a more significant part of people’s retirement income, alongside state pensions and private savings.
Austria’s social partners – representatives from employer and employee organisations – have agreed on a key change: making it easier for workers to convert their severance pay (Abfertigung) into a pension fund when they retire.
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Currently, if your employer hasn’t signed a pension fund contract, your severance pay can’t be transferred into a pension fund.
Under the new agreement, even if there’s no such contract, you will be able to move your severance payment tax-free into a pension fund at retirement. This is designed to encourage people to use that lump sum to secure a stable pension income for life, instead of withdrawing it all at once.
Is this mandatory?
No. The transfer will be voluntary. Employees can still choose to take their severance pay as a lump sum if they prefer. However, pension funds argue that converting severance payments is often the smarter move.
They typically invest in a mix of shares and bonds and have achieved an average annual return of around five percent over many years.
Zakostelsky said: “The idea is that we enable employees to participate in international economic development.” Pension funds can offer better returns than simply holding cash or relying on severance funds that have to guarantee the original capital and therefore invest more conservatively.
READ ALSO: EXPLAINED: How do employer top-ups to my pension work in Austria?
How does this benefit workers?
The main advantage is that pension funds pay out for life, even if the capital eventually runs out. This differs from simply investing your severance pay privately, where the risk falls entirely on you.
In practice, the change could dramatically increase the number of people with occupational pensions. Currently, around 1.1 million Austrians receive payments from pension funds, with an average monthly supplementary pension of €417. Zakostelsky estimates that the new general agreement could increase coverage to around four million people.
What about government support?
In addition to this reform, the social partners are proposing a model in which the state would pay a fixed premium into pension funds, alongside voluntary employee contributions. The goal is to make the system more attractive, particularly for lower-income workers who might otherwise choose not to contribute.
Sybille Pirklbauer, Head of Social Policy at the Chamber of Labour (AK), said: “The advantage would be that lower incomes would be incentivised more.”
Finance Minister Markus Marterbauer added that a strong occupational pension pillar also benefits companies because it improves their attractiveness in recruiting talent. In Austria’s tight labour market, offering a decent company pension could be an important competitive advantage.
READ ALSO: Why only a quarter of Austrians trust the pension system
What happens next?
The ball is now in the government’s court. While the social partners have reached an agreement, the Ministry of Finance needs to draft a new law to put these changes into effect.
If you’re working in Austria, these changes won’t replace your state pension. But over time, they could mean a larger share of your retirement income comes from employer-linked funds, reducing pressure on the public system and helping you build a more stable financial future.
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