Retirement Planning Happy Austria: What We Can Learn from Our Neighbors About Pensions

Sometimes, looking beyond our borders helps us realize just how narrow our own perspective has become. Pensions are a good example of this.

In Germany, the discussion usually revolves around whether we can “still afford” pensions—whether they’re becoming “too expensive.” Austria shows that more is possible when it comes to pensions than many people realize.

Pension Amounts: Who Gets What?

In Austria, pensions—known there as “Pensionen”—are significantly higher than in Germany.

In 2023, the average old-age pension in Austria was 1,869 euros (gross) per month, compared to 1,236 euros (gross) in Germany. These are the average figures for all pensioners at that time (“existing cohort”).

In both countries, men receive higher pensions on average than women. The reason: In both countries, women have historically been—and continue to be—less likely to work and spend fewer years in the workforce. This reduces their future pension. This is because both countries apply the so-called equivalence principle: Those who contribute more to the pension fund receive more in return—and vice versa.

It’s important to note regarding the figures mentioned: averages should be treated with caution. Specific features of pension law can skew the average. For example, in Germany there are insured individuals who contributed to the pension fund for only a few years and then became civil servants. They receive minimal pensions and pull the average down.

Figures for a narrowly defined group of people are therefore more meaningful: for example, people who were employed for decades and paid pension contributions.

But even here, it’s clear that Austria is well ahead. Men with long insurance histories who recently retired received an average monthly old-age pension of 3,187 euros (gross) in 2023. In Germany, the figure is 1,804 euros.

Important: In Austria, pensions are paid out 14 times a year—this is already factored into the comparative figures cited.

Contribution Rate: Who Pays What?

The contribution to the statutory pension in Germany is 18.6 percent of gross wages (2024). In Austria, it is higher at 22.8 percent (2024).

An important point to note: In Germany, employers and employees split the pension contribution, each paying 9.3 percent of gross wages. In Austria, employers pay more—namely, 12.55 percent of gross wages. Employees pay 10.25 percent.

Pension Adjustments: When Will Pensions Increase?

In Germany, pensions follow general wage trends—though with restrictions that limit pension increases. In Austria, pension increases are tied to the inflation rate.

The bottom line is that the increases in Germany and Austria are relatively similar.

Retirement age: When can you retire?

The standard retirement age in Germany is 67 for those born in 1964 or later. In Austria, it is 65 for men. For women, it was previously 60, but is now being gradually raised to 65.

Penalties: What’s the cost of early retirement?

Anyone who retires before the standard retirement age must accept reductions . The reductions are higher in Austria than in Germany: there, they amount to 4.2 percent for each year of early retirement (Germany: 3.6 percent).

However, this does not mean that retirees in Austria actually face higher reductions. After all, the retirement age is lower than in Germany. And the reductions only apply if retirement begins early. Early retirement is much more likely when the retirement age is higher.

Taxes and Social Security Contributions: What Is the Net Amount of the Pension?

In Austria, pensions are already fully taxable today.

In Germany, the tax system is currently being overhauled: A portion of the pension is currently tax-free. Starting in 2058, pensions in Germany will also be fully taxable, but pension contributions will be tax-deductible. Even in the future, however, many pensions in Germany will remain tax-free because they fall below the tax-free threshold.

Health insurance is more affordable for pensioners in Austria: The premium there is 5.1 percent of the gross pension. In Germany, it is 7.3 percent plus half of the individual supplementary contribution.

In absolute terms, taxes and social security contributions in Austria are, on average, higher than in Germany. However, this is because average pensions in Germany are so low that hardly any taxes are due.

Pension Eligibility: How Long Do I Have to Contribute?

Anyone who has contributed to the pension fund for at least five years is entitled to a pension in Germany. In Austria, this waiting period is at least 15 years.

This means that German retirees receive a payment—albeit a very small one—even after just a few years of contributions. In Austria, they would receive nothing. In return, small pensions in Austria are topped up more generously than in Germany.

Financing: Who funds the pension system?

Both countries use a pay-as-you-go system for pensions. This means that working people finance pensions through their contributions. The money is not saved but is distributed immediately.

But there is one important difference: In Austria, all working people are covered by the statutory pension system.

In Germany, by contrast, there is a coexistence of many different systems. Employees generally contribute to the statutory pension insurance system. Civil servants, however, do not. Many self-employed professionals also have their own pension systems, such as pharmacists or lawyers. As a result, the financial base of the German pension insurance system is much narrower than that of its neighbor.

In both countries, the pension insurance system also receives subsidies from the federal budget. Relative to economic output, these subsidies have remained stable in both countries for decades.

Conclusion:

There are many differences between pensions in Germany and Austria. A direct comparison is therefore difficult.

But the bottom line, as seen when looking at our neighboring country, is that a pension system can provide better benefits than in Germany. Pensions in Austria are significantly higher than here.

Small pensions are therefore not a law of nature. They are the result of political decisions that could also be made differently. Many so-called constraints are, in reality, matters of policy design. And often, they are also matters of distribution.

This is evident in private retirement planning: Parallel to benefit cuts in the statutory pension system, private retirement planning has been expanded in Germany. Employees are expected to set aside 4 percent of their gross income for this purpose.

The reality is far from that. Many people do not make private provisions for retirement. Low-wage earners, in particular, can afford it less and less. No wonder: After all, employees must shoulder the costs of private retirement savings alone. Employers do not contribute to this—unlike pension contributions, which are paid by both sides.

A pension system that all working people co-finance through solidarity. And slightly higher contributions shared equally by employees and employers. That would be a formula for better pensions.

Austria is leading the way.