Austria’s pension expenditure is projected to rise by around 1.3 percentage points of GDP by 2030 based on current policies, according to the Organisation for Economic Co-operation and Development (OECD).

The pension system in Austria consists of a defined benefit (DB) public scheme with an income-tested top-up for low-income pensioners.

The OECD Economic Survey: Austria 2024 noted that in 2022, public pension expenditure as a percentage of GDP was 13.7 per cent, but this will rise to 15 per cent by 2030.

Furthermore, its report stated that given the parameters of today’s pensions system, the ratio of pensions to GDP would increase “sharply” by 2070 because of changes in the age structure of the Austrian population.

It also found that the gradual increase of the retirement age of women from 60 to 65 between 2024 and 2033, to align with the retirement age for men, will help contain the impact of ageing.

In addition to this, indexation of pensions to inflation, in the long run, will also help control costs relative to economic activity but may affect pension adequacy in the future.

To ensure long-term sustainability, the OECD has recommended adjustments that could be made to the contribution rate, the pension level and the retirement age.

The OECD said that as the labour tax is high when compared internationally and the average pension is decreasing relative to wage, age adjustments are likely to be the most effective solution.

Furthermore, linking the retirement age to life expectancy could help manage the financial risk for those living longer. For instance, if people live two years longer than expected, pension expenditures could increase by 0.7 per cent of GDP by 2070.

The report noted that some OECD countries already link retirement age to life expectancy helping reduce expenditures and supporting economic growth.

This would be helpful for Austria as the country is expected to have one of the lowest effective labour market exit ages in Europe starting in 2030 and a low normal age in the future relative to other OECD countries which have already passed reforms increasing the retirement age.

In addition, Austria faces challenges of low employment rates among older people.

Progress has been made to limit early retirement, but the OECD said more could be done to encourage older people to stay in the workforce including reducing early retirement pathways by reforming the access to disability pensions and offering job-related training while reducing the cost for employers and employees.

However, the OECD warned that adjustments to the pension system would need to ensure vulnerable groups are protected. The poverty rate of the elderly population in Austria is high.

It recommended that part of the savings from lower pensions and higher retirement age should be targeted towards increasing minimal pensions and adjusting the cost of living.

The impact of inequalities in life expectancy is a challenge for pension policy, with the OECD advising that linking retirement age to life expectancy should be neutral if there is no trend in the inequalities.

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