Making the pension system sustainable

Financial security in old age is one of the biggest long-term concerns of the domestic population. This is the conclusion of the recently published OECD study Risks that matter. 79% of Austrians name this as one of their three biggest long-term concerns. This is significantly higher than the OECD average of 72%. "Against the backdrop of demographic change, the Austrian pension system continues to face major challenges. A reform for the sustainable financing of the pension system is still pending," says Tobias Thomas, Director of the economic research institute EcoAustria.

Previous pension reforms have made the pension system a little more demographically stable, but at the cost of declining benefits. For example, an analysis using EcoAustria's "Schulden-Check" generation account model shows that the ratio of average pension to average earned income will fall from 56% at present to around 48% in 2060. At the same time, the expenditure ratio in the area of pension benefits will increase by 1.5% to 16.2% of GDP by 2060.

"In principle, a pay-as-you-go pension system only has a few options for responding to demographic change," explains Thomas. On the one hand, contributions can be increased. These would have to be increased by 1.5 percent of GDP by 2060. In view of the already high burden on the labor factor in an international comparison, this does not appear to make sense. An alternative option would be an additional reduction in pension benefits of almost 10 percent by 2060. This would represent a significant weakening of financial security in old age.

The third option would be to link the statutory retirement age to the increase in life expectancy, which will rise from just under 82 today to over 88 by 2060. In order to compensate for demographic change, the statutory retirement age would have to rise from 65 to 67 over the same period. However, this increase does not mean that the actual retirement age will rise to the same extent. EcoAustria Policy Note 23, which analyzes various reform scenarios for the Austrian pension system, concludes that in order to avoid a further reduction in individual benefit levels, employees would actually have to work until the age of 63 on average in 2060.