A “genuine paradigm shift” to pension provision in Austria has moved forward as the Council of Ministers set out measures approved by the government aimed at strengthening the second pillar of the country’s pension system.

The government is aiming to make occupational pension schemes more attractive, transparent and efficient for employees, whilst taking the pressure off the first pillar.

A key measure is the introduction of a General Pension Fund Agreement, which will significantly broaden access to occupational pension schemes for all employees.

The reform also increases flexibility in how contributions are invested, giving employees the choice between traditional guaranteed products and higher-return capital market–linked options.

In addition, personal contributions to occupational pensions will benefit from improved tax treatment, with supplementary pensions from private contributions set to become tax-free.

Commenting on the reforms, Foreign Minister, Beate Meinl-Reisinger, said: "This is nothing less than a genuine paradigm shift in pension provision.”

She said the government will ensure that the €22bn “lying dormant in pension funds” will be invested in the capital market, “pooled, profit-generating and without costing a single cent of taxpayers’ money”.

“In doing so, we are giving all working people the chance of a significantly higher pension without placing a burden on the budget. Anyone who makes consistent use of the new system throughout their working life will increase their net pension by around 10 per cent,” she said.

Referring to the planned introduction of the Abfertigung NEU severance scheme, Minister for Labour and Social Affairs, Korinna Schumann, explained that in the future, employees will be able to decide whether they wish to have their severance pay paid out or invest it specifically towards their pension.

In addition, structural measures will make the system clearer and more efficient.

For example, the automatic consolidation of accounts will provide “a much clearer overview”, whilst at the same time reducing administrative costs for pension funds, Schumann stated.

According to State Secretary at the Ministry of Finance, Barbara Eibinger-Miedl, Austria remains a country of traditional savers.

Around 70 per cent of assets are held in very conservative savings accounts, with only 30 per cent invested in the capital market.

By strengthening the second pillar and highlighting the opportunities offered by the capital market, the aim is also to raise awareness among Austrians of these alternative investment options.

In particular, Eibinger-Miedl said the reforms will be beneficial for young people who can benefit from a long contribution period.

She said: "Anyone who makes pension contributions for decades should see a tangible benefit from this in retirement. That is why we are modernising the occupational pension scheme.

"In future, everyone will be able to decide for themselves whether the contributions paid in by their employer should be invested in a pension product offering higher potential returns.

“Through the General Pension Fund Agreement, we are also making a supplementary pension available to everyone. Previously, this was only possible for the approximately 25 per cent of employees whose employers had voluntarily contributed to the pension fund system.

"In this way, we are making pension provision more attractive and raising awareness of investment opportunities on the capital market."

The planned reforms have been welcomed by the Association of Pension and Provident Funds (WKÖ).

Its chair, Andreas Zakostelsky, said: “Broadly speaking, these measures address two of our long-standing demands: supplementary pensions from pension funds will become accessible to everyone in Austria.

“At the same time, there is a significant improvement in the framework conditions for even more profitable investment in the future. A large proportion of the planned measures, therefore, provide important impetus to strengthen the second pillar of the pension system and make it accessible and more attractive to broader sections of the population.”

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