The New System of Severance Pay in Austria

For Austrian workers, the new severance pay system (Abfertigung neu) introduced after January 1, 2003, fundamentally transformed the previous regulations, modernizing and making the severance pay system more flexible.

This transformation brought significant changes for both employers and employees, with the aim of ensuring long-term financial security for workers, regardless of changes in employment status.

Main Features of the New System

The new severance pay system applies to all employees whose employment began after January 1, 2003. Public service employees are exempt from this, as different rules apply to them. One of the key elements of the new system is that upon termination of employment, the employee becomes eligible for severance pay, regardless of whether the employment ends through dismissal, mutual agreement, or retirement.

Every employer is required to pay 1.53% of the employee’s gross salary into an employer’s fund (Mitarbeitervorsorgekasse) on a monthly basis. These contributions accumulate continuously throughout the entire employment period and provide the basis for the employee’s severance pay.

Employer contributions are managed by a so-called Mitarbeitervorsorgekasse, which is a pension fund system that ensures proper handling and investment of contributions for employees. The purpose of these funds is to securely manage the deposited amounts and provide the best possible returns for employees. The selection of the fund is the employer’s responsibility, but employees can also request transfer to another fund if they are dissatisfied with the current manager.

Payment Options

When the employment relationship ends, the employee can choose to receive the severance pay in cash. This option can be particularly advantageous if the employee needs the money immediately, such as while searching for a new job or if unexpected expenses arise.

Alternatively, the employee can choose to transfer the severance pay to a pension fund. This option provides long-term financial security, as the contributions continue to grow and earn interest, resulting in a higher amount available upon retirement. This solution can be particularly attractive for those who are making long-term financial plans and want to ensure a stable income source during their retirement years.

Advantages of the New System

One of the biggest advantages of the new severance pay system is flexibility. Employees no longer lose their severance pay when changing jobs, as the contributions are tied to the employee, not the employer. This means that employees can change jobs more freely without worrying about losing their severance pay.

The system guarantees the financial security of workers by continuously accumulating severance pay amounts throughout the entire duration of their employment. This can be particularly important for those who are planning long-term and want to ensure they have a financial reserve when their employment ends.

The role of cashiers and transparent management of deposits increases workers’ trust in the system. Employees can track deposits and the performance of cashiers, ensuring that severance amounts are properly managed and invested.

Investing severance pay amounts may involve a certain level of risk. Although the goal of pension funds is to provide safe and profitable investments, market fluctuations can affect returns. Therefore, it is important for employees and employers to make informed decisions when selecting pension funds.

It may be important to know that different rules apply to severance pay for public service workers, and it is worth looking into this if someone works in this field.