From Generosity to Sustainability: The Austrian Pension System and Options for its Reform

Austria has one of the world's highest pension expenditures relative to GDP, largely because of the generosity of its pension system. This paper examines the institutional setup of the Austrian pension system and projects its medium- and long-term development based on current policies. The projection results show a swift worsening of the finances of the pension system. With the already high level of contribution rates, pension expenditures, and budget transfers, the results underscore the need for reform. Much of the necessary reform can, however, be achieved by maintaining the structure of the system and adjusting some of its key parameters, as begun in the recent pension accord. The paper outlines options for further reform steps.