Austrian pension reform “unfinished business”
AUSTRIA – The International Monetary Fund has praised Austria’s pension reform, but highlights that the second and third pillar systems need gradual development.
In its annual consultation on Austria, the IMF described the recent pension reform as “a major and courageous step”. The reduction in benefits and increase in working life that the reform focused on, will, according to the IMF, succeed in lowering the fiscal burden of the pension system, and dampen some of the pressures of an ageing population. The 10% cap on benefit cuts, however, was questioned.
“There is still unfinished business,” says the report – notably the harmonisation of the various pension schemes, which, although under review, has not been finalised. The IMF advises that “harmonisation should primarily aim at reducing inequities and distortions between pension schemes, and that generating additional savings should be a secondary objective”. It is planned that personal pension accounts will be introduced.
“The gradual development of the second and third tiers would reduce the reliance on the public pension system,” says the IMF.
Austrian parliament passed the pension reforms bill in June, after being forced to compromise on several points to calm public outrage and calm rebellion among the two coalition parties.
As part of the reforms, the age of retirement for men will be increased from 61.5 years to 65 years, and the age of retirement for women will be increased from 56.5 years to 60 years. The increases are to be introduced gradually from July 2004 to 2013.
Those who decide to retire early will see reductions in their gross pensions increased to 4.2% from the current 3.75%, with early retirement being abolished by 2013. On the other hand, those retiring later will receive a bonus.
Other reforms agreed include a reduction in the rate of contribution increase from two percent to 1.78%. This will now be made in four gradual steps up to 2006.