Information in English

Three Pillars
In Austria, as in most other European countries, the retirement provision rests on the so-called “Three Pillar Model”.
The first – public – pillar is in principle financed by social security contributions. Unfortunately this source is insufficient (approx. 80% of needed funds in 2006). This leads to an (ever increasing) shortfall that has to be funded out of general tax revenues.
The second – occupational – pillar is financed by untaxed employer-contributions. The legal basis is the 'Pensionskassengesetz' (Pension Fund Act) and the Betriebspensionsgesetz (Occupational Pensions Act) which became effective on July 1^st, 1990 after protracted political discussions. The Pension Fund Act is the legal framework for establishing and operating a pension fund, whereas the Occupational Pensions Act is the social- and labour-law framework. It also provides for employee contributions out of the taxed income.  
The third pillar is based on individual retirement provisions, such as savings, pension insurance, investments in stocks, bonds, etc., that have to be funded out of the already taxed income.

Pension Funds
One way to provide employees with an occupational retirement provision is via pension funds which by law have to be joint stock companies. There exist single- and multi-employer pension funds. The latter are not limited to a certain company and offer their services to any interested employer.
VBV-Pensionskasse AG is such a multi-employer pension fund. Together with its competitors is has become the preferred means for employers to secure occupational retirement for their employees, as they offer (in the long run) higher returns, more transparency and more rights regarding the investment of the funds than the other products in this sector.
In comparison with other countries with a longer history of pension funds only few Austrian employees “own” a pension promise by their employer. Therefore this sector provides a high potential for the years to come.

The Contract
The pension fund contract deals (amongst other things) with the contributions, administrative costs, transformations of candidatures, the different forms of pensions, investment regulations and information rights and duties. Each pension fund contract has to offer a retirement provision for the employee and his dependents. VBV also has a disability pension incorporated in its actuarial note and therefore also in all its contracts.

The Contributions
The contributions are primarily made by the employers, but employees can also contribute to their future pension by paying sums which may not exceed the amount of the employer. Exempt from this ceiling are employer contributions that are less than EUR 1,000. In this case the employee may contribute up to EUR 1,000 regardless of employer contributions.
The contributions are administered in a separate legal entity (investment and risk collective) where they are not accessible for creditors of the pension fund in case of bankruptcy. Each beneficiary has his personal account which is divided into employer’s- and employee’s contributions (for tax purposes). Once a year the beneficiary receives a written account-statement which informs him (her) in great detail about the occupational retirement provision.
Apart from a pension an employee may also request the payment of a lump sum, but only if the accrued capital on his account does not exceed EUR 10,500 (2010).  

Taxing of premiums and pensions
Relevant for the taxation of premiums and pensions is the Einkommenssteuergesetz (Income Tax Act).

Employer:
Generally: An occupational retirement provision may only be granted in addition to the already existing salary (it may not reduce it). As an incentive no additional wage-costs (social security contributions) have to be paid.
Defined Contribution: Up to 10% of the gross-salary is regarded as deductible. Premiums in excess of 10% may be paid, but are not deductible.
Defined Benefit: Contributions are deductible if the occupational retirement provision does not exceed 80% of the last income and the total of the 1^st and 2^nd pillar-pension does not exceed the last income.

Employee:
Pension payments are taxed by income tax only (no social security contributions). The employer-financed part of the pension will be taxed together with the social-security pension. As employees contribute out of their already taxed net-income, the employee-financed part of the pension is paid out gross for net. Exempt from this regulation are contributions that were deducted as special expenses by the employee in the year of payment. In this case ¼ of the employee-financed pension will be taxed with the employer- and social security pension.
§108a of the Austrian Income Tax Act provides for a premium payment by the state. This premium varies from approx. 8 – 12% and depends on the average-yield of the Austrian secondary market in the preceding year. The maximum contribution for which a premium may be requested is EUR 1,000.

Further information:
Mag. (FH) Alexander Karlon
Tel. 01/24010-131
a.karlon(SPAMSCHUTZ,BITTE_ENTFERNEN)@vbv.at