Brief analysis 1: Reforming the pension system for the future

Pensions are currently playing a central role in the run-up to the National Council elections. After the last government initiated an increase in minimum pensions, it was decided at the most recent pension summit that the pension adjustment for pensions up to EUR 2,500 should be more substantial. Other demands are aimed at taking greater account of child-raising periods, for example. "As important as it is to ensure adequate provision in old age or to take into account the lifetime achievements of mothers and fathers, it is surprising that once again the sustainable financing of the pension system does not play a role in the proposals," says Tobias Thomas, Director of the economic research institute EcoAustria.

The Austrian pension system continues to face major challenges due to demographic change. Although past reforms have made the pension system a little more demographically stable, this has come at the cost of falling benefits. Without further reforms, the ratio of average pension to average earned income will fall from 56% today to 48% in 2060. "Despite the reforms of the past, the Austrian pension system is currently not sustainable," says Thomas.

For example, an analysis using the EcoAustria Debt Check generation account model shows that the share of GDP spent on public pensions will increase by 1.5% of GDP by 2060 without further reform measures. If this expenditure is financed through rising taxes, this will place a burden on the labor factor and limit Austria's competitiveness as a business location.

"If pensions are to be secured at a sufficient level for current and future generations, the pension system must be reformed in a demographically sound manner," says Thomas. In principle, there are only a few ways in which the pension system can respond to demographic change: Firstly, contributions can be raised further. In view of the high burden on the labor factor, this does not appear to make much sense. Another option would be an additional reduction in new pensions. This would represent an additional weakening of financial security in old age. In addition, the federal contribution could be increased, but this in turn would have to be financed through taxes or debt. Another option is to link the statutory retirement age to life expectancy. According to current forecasts, this will rise from 82 today to 88 by 2060. "In order to avoid an increase in the pension expenditure ratio, the statutory retirement age would have to be raised by around two years by 2060 in addition to the reforms already agreed. It would then be 67 in 2060. In order not to reduce individual benefit levels at the same time, employees would actually have to work until the age of 63 on average in 2060. By raising the retirement age beyond this, a higher level of pensions and greater consideration of child-raising periods could also be guaranteed in the long term," explains Thomas.