Potential Changes to German Pension System Inspired by Austria

As debates surrounding pension reforms intensify ahead of the upcoming Bundestag elections in February 2025, the focus has shifted to a proposal that seeks to overhaul Germany's pension structure by taking cues from Austria. This initiative, spearheaded by the Bündnis Sahra Wagenknecht (BSW), aims to provide increased retirement benefits for all, but it faces significant challenges.

The current landscape of pensions in Germany is characterized by rising additional health insurance contributions and an increasing retirement age, while a growing number of pension contributors are exiting the workforce. The crux of the issue is clear: a dwindling workforce is tasked with supporting a rising number of retirees.

The BSW's proposal advocates for a tiered pension system similar to that of Austria, which would guarantee a minimum pension of EUR1,300 for retirees with 30 years of contributions, EUR1,200 for those with 15 years, and EUR1,500 for individuals with 40 years of service. To support this plan, the BSW suggests that all employed individuals be mandated to contribute to the public pension scheme, which would include members of parliament and federal ministers as well.

In addition to establishing a minimum pension, the BSW envisions maintaining an average benefit level of at least 75% of a retiree's net income from their working years. The proposal also includes an inflation adjustment that would increase all pensions by EUR120 per month. Furthermore, the BSW aims to strengthen the pay-as-you-go pension system while discontinuing incentives for private pension plans, such as the controversial Riester pension, which has often been criticized for its ineffectiveness for lower-income earners.

According to the BSW, after 45 years of contributions, individuals should be able to retire without penalties starting at age 63, and any further increases in the retirement age are firmly opposed by the group.

However, the Deutsche Rentenversicherung (DRV) has cautioned against directly comparing the German and Austrian pension systems, citing fundamental differences that complicate such evaluations. For instance, Austria does not have a segmented classification of workers into mandatory insurance systems, meaning that a transition could impact various groups--such as employees, civil servants, freelancers, and farmers--very differently.

Moreover, there is a notable disparity in waiting periods for pension eligibility. In Austria, this period is 15 years, whereas in Germany, it spans five years. The DRV highlights that in Germany, lower pensions--often referred to as 'mini pensions'--from individuals such as homemakers and the self-employed can bring down the average pension figures. Conversely, those with only short contribution periods may not receive any pension at all in Austria.

The contribution systems in both countries also differ significantly. The pension insurance contribution rate in Austria stands at 22.8%, compared to Germany's 18.6%, with the Austrian system also receiving more substantial federal support, which accounts for about half of the pension difference between the two nations. Additionally, demographic factors contribute to the pension gap, with Austria benefiting from a younger population.

Currently, the average statutory pension in Austria is EUR1,645 per month, which is EUR500 higher than the average in Germany. The DRV points out that about a quarter of the pension disparity arises from demographic advantages that cannot be simply transferred from one country to the other.