Regulation of state and supplementary pension schemes in Austria: overview

A Q&A guide to pensions law in Austria.

The Q&A gives a high level overview of the key practical issues including: state pensions; supplementary pensions; funding and solvency requirements; tax on pensions; business transfers; participation in pension schemes; and employer insolvency and overall scheme solvency.

The Q&A is part of the Multi-jurisdictional Guide to Pensions law. For a full list of jurisdictional Q&As visit www.practicallaw.com/pensions-mjg.

Georg Schima and Birgit Vogt-Majarek, Kunz Schima Wallentin Rechtsanwälte OG (member of Ius Laboris)
Contents

Pensions

State pensions

1. Do employers and/or employees make pension contributions to the government in your jurisdiction?

Contributions paid to the government

The following pension contributions are payable to the state:

  • Employers pay 12.55% of employees' salaries.

  • Employees pay 10.25% of their salaries.

No pension contributions are payable by employees who earn below EUR405.98 per month in 2015. The precise amount is adapted each year depending on the rate of inflation.

Taxation of contributions

Generally, the tax treatment of the paid contributions and the pension payments resulting from them depends on who made the contributions to the pension fund or the insurance company.

Employers' pension contributions are tax-deductible as business expenses. Employees' pension contributions are qualified as income related expenses and reduce the basis of taxation of the salary.

Monthly amount of the government pension

The monthly amount of the state pension depends, in particular, on the total contributions made during a person's working life.

 

Supplementary pensions

2. Is it common (or compulsory) for employers to provide access, or contribute, to supplementary pension schemes for their employees? If they do, are they:
  • Occupational (that is, linked to an employment or professional relationship between the plan member and the entity that establishes the plan)?

  • Personal (that is, not linked to an employment relationship, established and administered directly by a pension fund or a financial institution acting as pension provider, where individuals independently purchase and select material aspects of the arrangements, though the employer may make contributions).

In addition to state pension provision, the employer can voluntarily provide occupational retirement provisions for employees based on the Company Pension Act (Betriebspensionsgesetz) (BPG), which contains the relevant provisions.

The BPG specifies four forms of occupational pension schemes:

  • Pension fund schemes.

  • Occupational pension group insurance.

  • Direct benefit schemes.

  • Life assurance contracts.

These occupational pension schemes are collective and corporate forms of old-age provision. These schemes can be implemented by means of a collective bargaining agreement (CBA), a works agreement or an individual agreement as the instrument for regulating terms.

Due to the principles of equal treatment, no employee or group of employees can be arbitrarily excluded from the provision of such payments.

 
3. Where supplementary schemes are provided, do these schemes provide pensions, the value of which:
  • Is linked to the employee's salary (defined benefit)?

  • Is linked to employer and/or employee contributions and investment return on those contributions (defined contribution)?

Linked to the employee's salary

Company pension schemes are becoming increasingly common, but are not mandatory.

Pension fund schemes can be either those under which the pension can be determined at the start of the arrangement and those that cannot, because, for example, the pension amount is dependent on contributions. The latter form of pension fund scheme (where the pension amount cannot be determined at the start of the arrangement) is more common.

Linked to employer and/or employee contributions

See above, Linked to the employee's salary.

 
4. For supplementary pensions:
  • Is there a minimum period of service before workers are entitled to receive vested rights?

  • Are there any legal requirements for schemes or providers to index pensions in payment and/or revalue pension rights in deferment?

Minimum period of service

A minimum period of service is not obligatory. However, the parties can agree on a vesting period (Wartezeit) to receive the benefits. Therefore if the contract of employment is terminated before the end of the vesting period, there is no entitlement to receive the benefits.

Legal requirement to index

If a pension fund scheme agreed between the parties is provided, the employer is required to make contributions to a pension fund. The pension fund invests the contributions and pays them out when the requirements for a benefit payment are met. Pension funds are subject to supervision by the Austrian Financial Markets Supervisory Agency (Finanzmarktaufsicht).

 

Funding and solvency requirements

5. In relation to supplementary schemes, are these generally funded or unfunded? If funded, are there any solvency requirements on the sponsoring employer or provider?

Funded or unfunded?

Supplementary schemes are indirectly funded. However, contrary to the payment of the salary, the contributions to the pension funds are not subject to payroll taxes and social insurance contributions. For this reason, it is cheaper for the employer to pay contributions to pension funds, rather than raising salaries.

Additionally, employers' contributions to the pension funds are considered as tax-deductible business expenses.

Solvency requirements for funded schemes

There are no solvency requirements for (indirectly) funded schemes.

 
6. In relation to access for members to the funds in their supplementary pension scheme:
  • To what extent can members transfer their funds to another pension scheme?

  • How do members normally take the benefit of their funds (for example, lump sums, income withdrawals (drawdown), life annuity arrangements)?

  • What are the legal restrictions upon access to the funds (for example, age)?

  • What are the common arrangements for early retirement and ill-health retirement?

  • Are dependants of deceased members entitled to receive benefits payable on the member's death? What form do these commonly take?

Member's transfer of funds

Depending on the type of regulating terms (CBA, works agreement or an individual agreement), a direct benefit scheme may be transferred to an occupational pension fund scheme or an occupational group insurance scheme.

If the provisions are based on an individual agreement, it may be altered by mutual consent. If it is based on a works agreement, the approval of the works council is required.

Taking pension benefits

Normally, if the requirements for benefit payments are met, the form the pension benefits take are monthly pension payments. For occupational pension fund schemes, the pension is paid by transferring the funds to the beneficiary's account. For a direct benefit scheme, the employer directly finances and pays the pension.

Legal restrictions

To receive a pension, the statutory retirement age must be reached. In Austria, this is 65 years for men and 60 years for women.

Early and ill-health retirement

Early retirement is possible on the following grounds:

  • Long-term insurance periods (39 years).

  • Insurance contributions (36.5 years).

  • Physically demanding work combined with long-term insurance periods (for example, 45 insurance years or more).

  • Disability.

  • "Corridor pension", which allows both men and women to retire at 62, provided that they have a minimum of 39 insurance years. In addition to the standard deduction of 5.1% per pre-retirement year, there is an additional deduction of 2.1% per pre-retirement year before the age of 65 for "corridor pensions".

Dependants' benefits

In general, surviving spouses are entitled to survivors' benefits for 30 months. Widows or widowers who are past their 35th birthday upon the spouse's death are entitled to a widow's or widower's pension for life. The pension will cease to be for life if they remarry, in which case the pension will be for a period of 30 months (after the date of remarriage). Widows or widowers under 35 years of age are also entitled to recurring benefits on the following grounds:

  • They are incapable of work and were primarily maintained by the spouse until his/her death.

  • A child was born from the marriage.

  • The wife is pregnant when the husband dies.

  • The couple had been married for at least ten years.

Widows' or widowers' pensions may also be claimed by divorcees, provided that the divorced survivors had established rights to claim alimony from the ex-spouse and these alimony payments were made.

Children of a deceased parent are eligible for orphans' pensions if the deceased parent meets the relevant vesting criteria and the orphan is under 18 years of age. An orphan's pension is paid beyond the age of 18 for as long as the orphan is enrolled in education or training, or if the orphan is incapable of work.

 
7. Is there a regulatory body that oversees the operation of supplementary pension schemes? Do any other governance regimes apply to supplementary pension schemes?

Regulatory body

Austrian pension funds are supervised by the Austrian Financial Markets Supervisory Agency (Finanzmarktaufsicht). This authority can also influence individual pension plans, but only as regards the rules that they must follow (that is, the influence is created by strict rules controlled by the FMA which a pension plan must follow).

Regulatory framework

The regulatory framework is contained in the Austrian Act on Pension Funds 1990 (Pensionskassengesetz )(PKG) and the Act on Occupational Pensions 1990 (Betriebspensionsgesetz)(BPG).

The PKG contains the organisational framework for internal and supplementary pension schemes. It is aimed at a revising legal coverage for the prospective beneficiary. To meet the requirements the pension schemes are supervised by the Austrian Financial Markets Supervisory Agency, who conduct secure and efficient assessments. Furthermore, the PKG states the range of activities that the pension schemes can be involved in and there are guidelines for the assessment of the contributions.

Beyond that, it defines the minimum content and the requirements for the contract between the pension funds and the employer.

The BPG states the requirements for the establishment of internal and supplementary pension schemes and regulates their organisation and activities, providing security for pension commitments under a labour law perspective.

Other key governance requirements

There are no other key governance requirements.

Penalties for non-compliance

In case of violation of the PKG, the Austrian Financial Markets Supervisory Agency may impose sanctions according to Sec 33 PKG (for example, enact a notification or by publication of the infringement in the internet or the public newsletter Wiener Zeitung).

 

Tax on pensions

8. Are any tax reliefs available on contributions to supplementary pension schemes (by the employer and employees)?

Tax relief on employer contributions

Employers' pension contributions are tax deductible business expenses.

These payments are only fully subject to tax when the employee receives a lifelong annuity or lump sum payment.

Tax relief on employee contributions

Employees' contributions are promoted by federal government premiums and are, to a certain extent, tax deductible.

 
9. Are there any approval or registration requirements with the local tax authority where a supplementary scheme is established?

The employer must retain the tax and pay it to the relevant tax authority. The employer must inform the tax office of the commencement of every supplementary pension scheme. Separate registration or approval is not necessary.

 
10. What is the tax treatment of investments made by the scheme?

The investments are exempt from capital gains tax (Kapitalertagssteuer) and corporate income tax (Körperschaftsteuer).

 
11. What is the tax treatment of pension and lump sum payments made to members?

As far as the payment from the pension fund is financed by employers' contributions, the pension is fully taxable. The part of the pension that comes from employees' contributions is reported for tax purposes only for the first 25%. Therefore 75% of the pension is tax free.

Should the beneficiary of the pension fund receive a non-recurring lump sum payment, the tax rate must be reduced by 50% of the normal tax rate. The tax subject to this adjusted rate must be paid in even payments during the relevant months of the calendar year, provided that the capital value of the lump sum does not exceed EUR9,300.

 
12. Are there any other applicable tax charges on schemes?

See above, Questions 10 and 11.

 

Business transfers

13. Is there any legal protection of employees' pension rights on a business transfer?

Transfer of accrued pension rights

If the new employer is the universal legal successor (of the transferring employer), the pension rights (based on individual agreements) automatically transfer (that is, they are part of the employment contract between the new employer and the employee) and the new employer must provide the transferring employees with respective pension benefits. If the new employer fails to do this, the employees can refuse to be transferred, or they can claim the accrued benefits from the transferring employer.

Other protection for pension rights

Where the pension scheme formed part of a CBA, the application of a new CBA can result in inferior pension benefits. In this instance, the employee cannot claim for the difference. If the pension scheme is part of a works agreement, that agreement can be terminated by the new employer. In this case, the employee can claim for the accrued benefits from the transferring employer.

 

Participation in pension schemes

14. Can the following participate in a pension scheme established by a parent company in your jurisdiction:
  • Employees who are working abroad?

  • Employees of a foreign subsidiary company?

Employees working abroad

Employees who are working abroad can participate in a pension scheme established by a parent company in Austria.

Employees of a foreign subsidiary company

Employees of a foreign subsidiary company can participate in a pension scheme established by a parent company in Austria.

 

Employer insolvency and overall scheme solvency

15. Is there any protection provided for pension scheme benefits where the sponsoring employer becomes insolvent? If so, who provides the protection, and how does this operate? If the scheme itself is underfunded, are there any funding obligations on connected or associated legal entities?

Part of the company pension is protected under the Insolvency Insurance Act 1977 and any further claims must be asserted in the insolvency proceedings.

 

Online resources

Legal Information System of the Republic of Austria (Rechtsinformationssystem des Bundes)(RIS)

W www.ris.bka.gv.at

Description. This is the website of the Legal Information System of the Republic of Austria (RIS) and is a computer-assisted information system on Austrian law. It contains all Austrian (federal and federal state) laws, European law (EUR-Lex), as well as published decisions of the (higher) civil, criminal and administrative courts of Austria. It is co-ordinated and operated by the Austrian Federal Chancellery. It also contains a selection of Austrian laws in English translation.



Contributor profiles

Georg Schima

Kunz Schima Wallentin Rechtsanwälte OG (member of Ius Laboris)

T + 43 1 313 74 0
F + 43 1 313 74 80
E georg.schima@ksw.at
W www.ksw.at

Qualified. Austria, 1991

Areas of practice. Employment and labour law (including: employment law aspects of corporate restructuring; privatisation; management employment contracts; directors' and officers' liability); banking; finance and capital markets; acquisition and disposition of companies; commercial and corporate law; arbitration; corporate litigation.

Recent transactions

  • Advising and representing companies, as well as executives, in all of their employment and labour law matters.
  • Involved in a considerable number of legal disputes between executives and their employers (amongst them many companies listed on the stock exchange) concerning their diverse mutual claims.
  • Representing Meinl Bank AG in approximately 3,500 proceedings filed by private and institutional investors relating to their purchase of shares of former Meinl European Land Ltd (later renamed as Atrium European Real Estate Ltd), a Jersey domiciled corporation listed on the Vienna Stock Exchange.

Birgit Vogt-Majarek

Kunz Schima Wallentin Rechtsanwälte OG (member of Ius Laboris)

T + 43 1 313 74 0
F + 43 1 313 74 80
E birgit.vogt-majarek@ksw.at
W www.ksw.at

Qualified. Austria, 2002

Areas of practice. Employment and labour law (including: aspects of corporate restructuring; privatisation; management employment contracts); establishment, acquisition and restructuring of companies; banking and capital markets.

Recent transactions

  • Advising and representing companies, as well as executives, in all of their employment and labour law matters.
  • Involved in a considerable number of legal disputes between executives and their employers (amongst them many companies listed on the stock exchange) concerning their diverse mutual claims.

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