Comparative analysis of the German and Austrian pension systems

_ Yuri Kofner, junior ecomomist, MIWI Institute. Munich, 7 February 2020.

According to a recent study by the Scientific Service of the Bundestag, the opinion of the Research Service of the Bundestag, the statutory pension in Austria – with similar burdens for the state budget and employees – contributes significantly more to secure a relatively higher standard of living for the elderly than in Germany.

Taking Austria as a model for Germany would mean a fundamental reform: since 1958, Vienna has gradually integrated civil servants, members of parliament, freelancers, farmers, and almost all other self-employed persons into the statutory pension in addition to employees. Employees pay in 10.25 percent of their gross wages as a monthly contribution, the employer contribution is 12.55 percent. Self-employed pay 18.5 percent. In Germany, the employee and employer share is 9.3 percent each. Despite similar contribution rates for employees, many Austrian pensioners receive a statutory pension that is significantly higher per equal average income.

According to the pension account-model introduced in 2005, those who retire at 65 after 45 years of contributions should receive 80 percent of the average lifetime income as a statutory pension. The basic idea is that the statutory pension should secure the standard of living. The amount of the contributions is calculated from this. Despite the only slightly more favorable demographic development in Austria than in Germany, they have remained stable since 1990.

In Germany, the paradigm of securing living standards was reversed by the statutory pension reform in 2001. Since then, the affordable contribution rate for the contributors has determined the pension amount. A model German pensioner who has been a contributor for 45 years, there is currently a standard pension of 48 percent of the average gross income. The standard pension in Germany in 2019 was EUR 17,000 euros gross per year. The Austrian model retiree received around EUR 26,000 gross in 2019. That makes a difference of 800 euros a month.

According to Eurostat, the average price level in Austria was 6 percent higher than in Germany in 2019.

Those who earn less, have fewer contribution years, or retire earlier have to accept discounts in both systems. In Germany in 2018, according to the Ministry of Labor, 17 million people received less than EUR 1,000 per month from the statutory pension, almost 11 million of them after 30 or more years of contribution. On average, the statutory pension in Germany in 2019 was EUR 1148 per month for men and EUR 711 for women. Most recipients fall into the class between EUR 1200 and 1500 per month.

There are no pension class statistics in Austria. On average, the pension fund paid EUR 1678 for men and EUR 1028 for women. In Austria, in converse to Germany, there is also a minimum pension. After 30 years of contributions, it is EUR 1136 per month. Nobody gets less than EUR 966. Austrians can enjoy the statutory pension earlier. Men retire at 63 on average, women at 60. German women and men draw statutory old-age pensions on average from the age of 64.

Both states have to subsidize the statutory pension with tax revenue, the Austrians in 2018 in the amount of 2.2 percent of the gross domestic product, the Germans with 2.8 percent.

Austria has had better economic development than Germany since the start of the European monetary union.  According to World Bank Data, the average per capita GDP according to purchasing power parity in Austria (EUR 43,360) was around EUR 2,600 higher than in Germany (EUR 40,750) during 2001-2020.  Austria is extremely competitive internationally, as the development of unit labor costs and the positive current account surplus show. This could indicate two theses:

1. A strong public pension system is not necessarily a significant burden on a country’s economic performance.
2. An internationally competitive economic system is a necessary basis for the provision of a high level of social security in old age.

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