Austria

I. AUSTRIAN PENSION CONCEPT 2000

The federal government’s reform plans aim to increase the social justice between the various occupational groups and between the younger and older generations. In addition, they intend to safeguard the efficiency, acceptance for, transparency and long-term financing of the pension system.

The pension concept has essentially three objectives:

• To include all income from work in social security.
• To approximate the systems: Steps in this direction had already been taken in the past. While the differences between the old-age pension schemes for various groups of wage earners cannot be eliminated in one decisive move, an attempt should be made, however, to effect a step-by-step adjustment in civil servant law by introducing something like "total calculation periods" for assessing pension levels. Until now the calculation basis for civil servants has been their last salary.
• To reinforce the generation agreement: The rise in new pensions is to be slowed down so as to keep the future contribution payments for the present wage earners in check and to safeguard the long-term ability to finance the pension system. That means that the net replacement rate will be somewhat reduced by extending the assessment period and by introducing a new regulation on the increment amount. Yet it is expected that new pensions in the future will lie above the average of the present pension level. In absolute figures that would mean that there will be no reduction whatever in pensions, but rather there will be less of an increase in the pension level than in the previous system. Thus, in the event of a positive economic and labour market development, the pension system will be relieved to such an extent that its financing will be eased considerably in the following decades.

Financial Implications

In the short term, the measures underlying the pension concept will bring about billions in savings for social security. In the long term – i.e. when the pension reform goes fully into effect around 2040 – the reform measures will lead to considerable savings, resulting in a 10 to 15% decline in pension scheme expenditures.

II. CHANGES IN SOCIAL SECURITY LAWS

II.1 The inclusion of all income from work in social security (effective date: 1 January 1998)

Objectives:

• The broad and fair inclusion of all income from work in the social security system.

• New forms of employment (e.g. teleworking in self-employment) will be integrated into the protection of social security.

• To secure the transparency and fairness of the system, the connecting factors concerning occupational statutes will no longer apply to the new forms of gainful employment, but realised income instead will form the basis for the liability to contribute to social security.

The development of new employment forms in recent years has clearly shown that an increasing number of ways are being sought to evade labour law. Employers or contractors are urging more and more employees who are economically disadvantaged into employment relations exempted of social contribution in order to spare having to pay contributions. On the other hand, many – jointly insured employees at any rate – are very willing to take part in devising non-contributory jobs.

This manner of acting has caused the solidary community accompanying the compulsory insured to be deprived of considerable resources. But what is more, the important social protection will no longer be a given for many employees.

II.1.2 Change of concept of employee

The liability for employees to pay contributions according to the social security act for the wage and salary earners (ASVG) will be largely tied in future to the liability to pay wage tax according to the Income Tax Act. This ushers in a substantial simplification of the system. Until now, each individual case had to be examined with respect to the social security legal criteria for the concept of employees, separately from the tax evaluation.

II.1.2 New version of independent contracts of employment

The term } independent contract of employment~ will be more closely defined and the liability to pay contributions according to the ASVG will be restricted to those persons who perform their services themselves and do not dispose of any substantial working capital of their own. The contribution rate for the employers is 17.2%, the contribution rate for the employees is 13.5%. The same regulations will apply to } independent contract of employment~ as to "normal" employment contracts.

II.1.3 The "new self-employed"

Until now this group of persons had been for the most part exempted from contributions. The "new self-employed" (whose earnings stem from a free-lance or industrial activity without possession of a trade licence) will be included in the industrial social security act (GSVG):

• For these persons, an insurance contribution ceiling of ATS 88,800 per year will apply, provided that only this activity is carried on.
• The conditions underlying multiple insurance will apply when several gainful activities concur. An additional earnings ceiling of ATS 3,740 per month applies only when a gainful activity coincides with a self-employed activity.
• The possibility for those persons to opt in that do not realise an annual income of ATS 88,800 on the basis of a minimum contribution rate of ATS 7,400 per month for health insurance.
• Otherwise, no minimum contribution basis: the contribution rate, starting from 1 January 1998 at 15 %, then climbs annually until 2009 by 0.5 % until reaching 20.25 %.

In comparison: A minimum contribution basis of ATS 13,438 per month and a contribution rate in pension insurance of 14.5% applies to those carrying on a trade with possession of a trade licence.

II.1.4 Inclusion of insignificant employment in social security

As the law has stood until now, employees who carry on insignificant employment (remuneration below ATS 3,830) were only compulsory insured with accident insurance, regardless of the number of insignificant jobs and also regardless of whether another (compulsorily insurable) employment was carried on in addition to the insignificant employment.

Objectives:

• To eliminate incentives for employers to give way to insignificant employment.
• Those in insignificant employment will receive the possibility of being included in the coverage provided by social security. Including persons of insignificant employment in social security is an extremely important measure both against the backdrop of social protective thinking and also with respect to avoiding distorted competitive practices. In concurrence with the inclusion of all employed persons in social security, one of the last remaining gaps will be shored up.

• New legal situation for employers of those in insignificant employment:
  The employer shall pay a flat-rate employer contribution for all those employed by him in insignificant employment (up to ATS 3,830 in 1998), provided that the total of the remuneration for these employed does not exceed one and a half times the ceiling set for insignificant employment. (ATS 5,745)
  The contribution amount is calculated using the total remuneration for those in insignificant employment (The rate to be paid for manual workers is 12.55% for pension insurance, 3.95% for health insurance and 1.4% – as before – for accident insurance. The contribution rate for white-collar workers amounts to 12.55% for pension insurance, 3.5% for health insurance and 1.4% for accident insurance).

• New legal situation for those in insignificant employment:

• Employees with jobs whose total remuneration does not exceed the ceiling set for insignificant employment:
  These employees have the possibility of opting in by becoming voluntarily self-insured.
  The contribution rate basis is the ceiling for insignificant employment:
  This was ATS 3,830 in 1998.
  The contribution rate is the contribution amount set for all employees:
  health insurance: 3.95 % for manual and 3.4 % for white-collar workers;
  pension insurance: 10.25 %
• Employees with jobs whose total remuneration does exceed the ceiling set for insignificant employment:
  These employees will be compulsory insured in future.
  They shall pay their employee contributions over directly.

II.1.5 Change in financing farmer social security (BSVG)

• The lasting increase in the degree of self-financing in the farming sector by ATS 250 million will be attained through the following package of measures in pension insurance:
• Raising the minimum contribution basis (from ATS 5,169 to ATS 5,897 in 1998 and ATS 6,553 in 2000).
• Raising the contribution rate in pension insurance for farmers by 0.5  percentage points, from 13.5 % to 14 %.
  Begin: 1 January 1998
• Raising the insurance limit for sickness insurance to meet the level of the ceiling set for pension insurance (from ATS 13,000 to ATS 20,000).
  Begin: 1 January 1999

II.2 Changes in the benefit law for pension insurance

II.2.1 Extending the assessment period for calculating the pension assessment basis

An incremental extension of the assessment period (presently an average of the last 15 years of contribution payment) for pensions will be introduced in 2003 in the event that one enters into retirement prior to the statutory standard retirement age of 65 years for men and 60 years for women.

The period will be extended in two-month increments and the process will be completed by 2020.

The 18 best contribution years shall be decisive during this.

From 2020 the assessment basis will be reduced by an average of 2.5%, until reaching 3%, because of the extended assessment period.

II.2.2 New regulation on percentage rate increase (applicable to pensions as from 1 January 2000)

The heretofore complicated procedure of determining the percentage points increase (by 1.83% each time for the first 30 years of insurance, 1.675% for the subsequent years of insurance; either deductions or additions calculated by actuarial formulas, depending on whether pension benefits are claimed before or after age 56 for women and age 61 for men) will be replaced by a transparent system.

The following shall apply in future for old-age pensions:

• Two percentage increase points are awarded per year of insurance;
• When retirement is entered into before the standard age, two increase points are subtracted again per year from the percentage points acquired;

• Yet at maximum
• only 15 % of the percentage points acquired or
• 10 increase points may be deducted.
• 2% rate increase per year at the standard retirement age of 65/60.
  This means
  after 40 years at 60/65 80%
  after 35 years at 60/65 70%
• The percentage rate increase for each year prior to the standard retirement age
  is reduced by 2 percentage points: This means
  after 45 years of insurance at 55/60 80%
  after 40 years of insurance at 55/60 70%
  after 35 years of insurance at 55/60 60%

3. The maximum pension amount possible under social security may not exceed 80% of the individual assessment basis.

A safeguarding provision applies in the case of invalidity and occupational invalidity pensions: A comparison is drawn based on 1.8 percentage increase points without deducting any payment on account. The percentage increase more favourable to the insured will be used in calculating the pension.

II.2.3 Change in pension adjustment

The advisory council for adjusting pension levels intends to develop models which will enable a sensible interplay of the existing net adjustment level to the life expectancy factor, while taking the consumer price index into account.

II.2.4 The requisite conditions for claiming old-age pension prematurely on account of reduced work capacity

The conditions for claiming old-age pension prematurely on account of reduced work capacity, which today allows access to pension funds beginning at 55 years of age (women) and 57 years of age (men), will become more stringent and supplemented by additional criteria:

• From now on 72 months of contribution payment must be registered within the 180 calendar months before the qualifying date, instead of 36 as previously;

• the insurance contingency of reduced work capacity must be registered for at least 20 weeks.
  (Begin: 1 January 1998)

II.2.5 Facilitating claim to flexible pension (Gleitpension)

A person was able to slide into pension until now if all conditions for early old-age retirement were met in the event of being long-term insured (women at age 55/ men at age 60 with 420 months of contribution payments or 450 months of coverage respectively).

A loosening of these strict conditions (in future, 300 months of coverage will suffice – 108 months of which must be within the last 180 months) will increase the attractiveness of flexible pensions. Furthermore, the flexible pension amount will be more variably structured. This means that a lower pension will be properly accorded to higher additional earnings and a higher flexible pension for lower additional earnings.

II.2.6 Introducing a partial pension in the case of disability and occupational disability pensions if income is simultaneously drawn from gainful employment

Parallel to the regulations set out in the civil servant sector, a pension may only be drawn, in the event that an invalidity and occupational invalidity pension concurs with earned income, as a partial pension curtailed accordingly.

3. ACCOMPANYING LABOUR POLICY MEASURES

Within the scope of accompanying measures aimed at pension reform and whose measures will go step-by-step into effect as from 1 January 1998, new instruments were developed in the area of unemployment insurance and labour market policy to promote job creation. These include the training leave model and the solidarity bonus model which will be briefly described in the following:

3.1 Training leave model

• The training leave model is seen as a framework model that can be combined with further training measures or substitute hiring according to individual and company needs.
• Employees shall be entitled to a maximum twelve-month period of non-availability for training purposes or when hiring a substitute. During this period, allowance for further training – comparable to the child-raising allowance (Karenzgeld) in Austria – is paid out as a benefit.
• Substitute hiring of the unemployed occurs on a voluntary basis by the company, but it is a prerequisite then for receiving further training money, if no training objective is being pursued in house.
• Business grants for hiring are generally available within the framework of the usual promotional practices undertaken by the employment placement service for companies hiring the unemployed as substitutes for the employees on training leave.

3.2 Solidarity bonus model

• The solidarity bonus model intends to encourage groups of employees to collectively reduce their full-time working hours for a limited time period to an extent that the work volume corresponds to a part-time position.
• The effective duration of the reduction in the "solidarity worker’s" working hours shall be settled at company level.
• An unemployed person will be hired in addition to fill this part-time position opening. Business grants for hiring are generally available within the framework of the usual promotional practices undertaken by the employment placement service for companies hiring the unemployed as additional workers.
• Employees who freely surrender some of their full-time working hours for a limited time period, as well as the unemployed additionally hired, will receive payment of a solidarity bonus for a limited time period.
• The solidarity bonus duly appertains to the reduced working hours corresponding to the normal weekly working hours negotiated in collective agreement.

Similarly, a new model for crediting earnings from temporary employment was created in the area of unemployment insurance to increase the incentive of the unemployed to take on even temporary jobs and, on the other hand, so as to meet the industry demand for auxiliary staff.

The structural adjustment act of 1996 stipulates that an income of over ATS 3,600 (value for 1997: ATS 3,740) accrued from day-to-day or temporary employment does not render entitlement to unemployment benefits (emergency assistance, non-availability allowance) on not only the days of employment when compulsory insured but also during the entire calendar month.

This regulation has led to problems in all sectors where these temporary posts are common, since the unemployed oftentimes no longer take up temporary jobs on account of the imminent threat of not receiving insurance benefits. Problems and dire cases have arisen in other areas as well, where temporary employment is common and necessary. The present regulation has therefore been replaced by a crediting model for income from temporary employment.