Working in Retirement: New Tax Allowance from 2027 Instead of Flat Tax

The three-party coalition has agreed on a package of measures to make working in old age more attractive. Contrary to the original plan, there will be no reduced tax rate for additional earnings during retirement (flat tax), but rather a tax allowance of 15,000 euros per year, starting only in 2027. Additionally, labor market measures are planned to increase employment for people aged 60 and over, along with a reform of occupational pensions.

Government Wants to Keep Older People in Jobs

The goal of the employment package for older people, which was approved in principle by the Council of Ministers on Wednesday, is to strengthen the employment of older individuals. The planned allowance is intended to apply to both employees and self-employed individuals from the standard retirement age - whether they earn additional income alongside a regular age pension or postpone their pension. For additional earnings to the pension, 40 years of insurance are required. Furthermore, the employee contribution to pension insurance is to be eliminated for everyone from the standard retirement age. On the other hand, the option for special higher insurance - i.e., the tax-advantaged contribution to increase statutory pension benefits - will be discontinued.

This creates "more performance justice," said Chancellor Christian Stocker (ÖVP) after the Council of Ministers, so that "those who work more also benefit more." Vice Chancellor Andreas Babler (SPÖ) emphasized that from 2027, 100 million euros per year will also be invested in active labor market policy. Not all employees would reach the standard retirement age while still employed; some would transition from unemployment to retirement, Babler noted.

Additionally, the development of a monitoring and incentive system is planned to increase employment for workers aged 60 and over - details are still open. It is important "that people over 60 are not marginalized but have real opportunities to continue contributing their experience, knowledge, and competence," emphasized the responsible Labor Minister Korinna Schumann (SPÖ) in a statement.

Strengthening of Occupational Pensions Planned

NEOS leader Beate Meinl-Reisinger particularly praised the third part of the package - the strengthening of the so-called second pillar of the pension system as a "milestone." Currently, there is only the possibility of an occupational pension if the employer offers it voluntarily. To make access available to all employees, the creation of a general pension fund contract is planned. It should be possible to transfer funds from the "Abfertigung Neu" severance pay to a pension fund free of charge.

In cases of hardship - such as prolonged unemployment or severe illness - a limited, controlled access to a portion of the pension fund entitlement should become possible. Additionally, a "withdrawal option upon retirement" should be examined. The system of severance pay "Abfertigung Neu" is also to be reformed by 2027. The annual tax-free allowance for contributions to private pensions is to be increased.

Details to be worked out next year

According to the government, the details of the package are to be worked out next year. No additional budget funds are to be used for financing, as was emphasized. For the flat tax, 300 million euros had been budgeted for the coming year, which would now be partially used for the further tax benefits for overtime and tax exemption of Sunday and holiday pay, also decided in the Council of Ministers on Wednesday, according to Stocker.

Criticism from the Senior Citizens' Association

The ÖVP-affiliated Senior Citizens' Association is not pleased with the postponement. Their leader Ingrid Korosec told the "Salzburger Nachrichten" (Wednesday) that it was "a completely wrong signal." There had been a firm promise that the relief would come from 2026, she criticized. In contrast, the SPÖ-affiliated Pensioners' Association was pleased. The tax-free allowance primarily relieves small and medium pensions and is therefore more socially targeted than a flat tax, said Pensioners' Association leader Birgit Gerstorfer.

The Greens were pleased "that the unspeakable flat-tax model is off the table," but the alternative model presented is not significantly better, said labor spokesperson Markus Koza in a statement. The question remains why the government is promoting particularly well-earning pensioners with hundreds of millions while cutting back on low-income groups. FPÖ social spokesperson Dagmar Belakowitsch criticized that the "mini-package" is just a "drop in the ocean." To make working more attractive, the measures are completely inadequate, she stated.

WKÖ leader Martha Schultz welcomed that "working in old age is finally becoming more attractive" and that the self-employed are also being considered. The only downside is that the regulation is not set to take effect until 2027, Schultz said in a statement. However, the Association of Pension and Provident Funds is not satisfied with the plans for the second pillar. While the planned general pension fund contract fulfills a central demand of the industry, the association warns of a "threat to the entire system" due to a withdrawal option upon retirement and the possibility to withdraw or transfer the severance pay "Abfertigung Neu" at any time.

(APA/Red)

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