The public sector pillar dominates the Austrian pensions system, with private pensions remaining comparatively small and mostly provided by individual insurance products.

The state pension system is a pay-as-you go scheme, which is financed by employer and employee contributions. These amount to 10.25% of earnings for employees and 12.55% for employer contributions. Individual benefits are calculated by using a person's 18 highest-paid years, the length of insurance contributions and retirement age. Benefits can amount to as much as 80% of an individual's average lifetime earnings if contributions have been made for at least 45 years (subject to a predefined cap).

The legal retirement age is 65 for men and 60 for women, which will be gradually raised to 65 between 2024 and ending in 2033. Early retirement can be taken at the age of 62, but a discount is made for each year of retirement before the age of 65. 

Supplementary employee pension provision can be provided by employers for their staff in the form 

of one of the following five pension plan types:

Employers enter into contracts with pension funds to provide pension benefits for their employees.

A pension fund is set up as a legally separate entity in order to keep pension assets separated from the sponsoring company. Multi-employer pension funds have been established in order to allow smaller companies to make use of this funding vehicle as 1,000 beneficiaries are required to set up a Pensionskasse. However, several large companies with a substantial workforce have set up their own pension fund.

Contributions up to 10% of salary are tax-deductible for the employer, provided that a benefit limit of 80% of current earnings is not exceeded. Contributions are not treated as taxable income to the employee.

The pension fund is not subject to tax on investment income earned on employer or employee contributions; hence, investment income is tax-exempt. Employer-financed benefits are taxed as earned income, whereas only 24% of employee-financed benefits are taxed as income.

If total benefits are below €10,500, then they are usually paid out as life-long pensions or as lump sums.

Occupational collective insurance plans must provide a minimum return guarantee of 2.25% p.a. and must not be unit or index-linked.

The plans are not allowed to provide lump sum payments at the beginning of the payout phase unless the amount is below a certain minimum level and are obliged to provide life-long annuity payments.

Book reserves may be set up if the pension liability is based on a legally binding pension promise. The pension reserves are displayed as liabilities on the balance sheet. At least 50% of a companies book reserves must be secured by government bonds. 

Allocations to book reserves are tax-deductible and not considered taxable income to the employee, provided a limit of 80% of current earnings is not exceeded. 

Support funds are autonomous legal entities that do not grant a legally enforceable right to the beneficiary. In addition, they may only grant very low benefits. Consequently, this funding vehicle is increasingly losing importance in Austria.

No tax-deductible contributions can be made to a support fund during active employment. Benefits are taxed as earned income.

Direct insurance is an arrangement in which an employer pays premiums to a life insurance company. In return, the benefits will be provided directly to the employee or to other beneficiaries. About 10% of occupational pension scheme participants are covered by direct insurances.

Premiums are tax-deductible for the employer but are regarded as immediate taxable income to the employee if they exceed €300 per person a year. Employee contributions attract tax reliefs within the limits for special expenses. Annuity benefits are taxed as earned income, while lump sum payments are not taxed.

The normal retirement age for workers in occupational pension plans is 65.

The Organisation for Economic Co-operation and Development (OECD) - http://www.oecd.org