Austria’s pension system – a role model for Germany?

Sahra Wagenknecht and the Left are in favor of a pension system based on the Austrian model. People there retire earlier and get more money. How does this work? And is the model transferable?

Coffee and cake are served in the Vivaldigasse pensioners’ club. It is one of around 300 meeting points in Vienna for pensioners, who are called pensioners in Austria. The club is located in the heart of a large prefabricated housing estate in the Favoriten district, a working-class district. Most of the retirees who come here have had long working lives.

Almost everyone pays into the pension fund

“I trained as a salesperson,” says a pensioner. “Then I worked as a kindergarten assistant, as a helper. And then I was in the office.” A man says: “I worked in the catering industry. At the end, it was a party service. It was actually a relatively difficult job. We were always on the go.” Another pensioner reports that she was self-employed for 35 years – another that she worked from the age of 15 until she was 56. “And the pension is accordingly.”

Anyone who has had such a long working life can count on a good state pension in Austria. The salaries are significantly higher than in Germany. This is often attributed to the fact that almost all employed people in Austria pay into statutory pension insurance – including the state ones. This became effective around 20 years ago through a major pension reform.

80 percent of the lifetime income

Two motives were decisive for the reform, explains pension expert Christine Mayrhuber from the Austrian Institute for Economic Research in Vienna. The aim was to “dampen age-related expenses” and at the same time “to create harmony between the different employment groups”.

Civil service was almost completely abolished to enable equal treatment between state and other employees. Self-employed people in Austria are also obliged to pay in. In the end, pensioners should receive 80 percent of their average lifetime income after 45 years of contributions.

Higher social contributions, more tax subsidies

That costs – the working population and the state, says Holger Bonin, head of the Institute for Advanced Studies. “The expenses, first of all the social contributions, are four percentage points higher than in Germany. And the tax subsidy that comes from the federal budget is also around five percentage points higher than in Germany,” says the expert. “So it costs, but it’s also logical: If you want higher pension levels, you have to pay more.”

The German economist has sparked a heated debate in Austria with his proposal to raise the retirement age to 67. At the moment, Austrians retire at 65 and Austrian women at 60. The entry age for women is currently gradually being raised to 65. This is also a reason for the high costs.

People who do not consistently pay into the pension fund are worse off. You are only entitled to the statutory pension after 15 years of contributions; in Germany it is five years. And: there are hardly any company pensions or private provisions.

Statutory pension only Retirement income

“Germany has had the decision for a long time that the second or third pillar should be promoted,” says economist Mayrhuber. “This course did not exist in this form in Austria. The first pillar is the mainstay of Austrian old-age provision.”

The statutory pension is therefore higher – but it is usually the only income in old age. And there is another important difference between the countries: Germany is aging slightly faster than Austria.

Transition could take a generation

For such demographic reasons, institute director Bonin does not believe it is possible to simply transfer the Austrian system one-to-one to Germany. “You can’t escape this by saying we’ll take over the Austrian system, massively increase the pension level and lower the retirement age. Financing this alone by bringing in additional groups of insured people won’t work.”

If one wanted to reform the statutory pension according to the Austrian model, says Bonin, it would take one generation of workers. So 40 years.