2005 Pension reform

The changes mainly took effect from the beginning of 2005

1. Main aims of the reform

the renewed earnings-related pension rewards continued

participation in working life average effective retirement age postponed by 2-3 years increased average life expectancy taken into account based on the above, the pressures to increase the earningsrelated pension contribution kept under control supporting ageing employees ability to cope with their work

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2. Main principles of the pension reform

pension provision no longer determined on the basis of the earnings from an individual employment contract, but on the earnings of the working career (two modes of calculating possible in 2005 - 2012) improved pension provision for unsalaried periods increased life expectancy taken into account additional funding in the privat sector schemes 2003 - 2013 makes possible a combination of the private-sector earnings-related pension acts

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3. Accrual rates in the so called career model

a pension accrues between the ages 18 and 68
new accrual rates 18 52 years 53 62 years 63 68 years as of 2005 1.5% 1.9% 4.5%

correspondingly a 19/15 times (about 30%) higher employees contribution for over 53-year-old employees, compensates for about 1/3 of the costs for the additional accrual flexible retirement on an old-age pension between the ages 62 and 68
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4. Changed mode of calculating the pension

the current employment contractswere terminated from a
pension calculation viewpoint at the end of 2004 and calculated according to the current legislation

from the beginning of 2005, the pension is calculated on the

basis of the earnings and the accrual rate for each year = career model

in the private sector the pension for persons who retire

before 2012 from an employment contract which started before 2005 is calculated on the basis of the current and the new legislation, and the higher one is paid

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5. Old-age pension
retirement on an old-age pension on ones own

initiative flexibly between the ages 62 and 68 retirement on the accrued pension between the ages 63 and 68 without an abate for early retirement for persons aged 62-63 an abatement of 0.6% for each month that the pension is taken early (longterm unemployed without the abatement) increment for deferred retirement after the age of 68

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6. Rehabilitation and threat of incapacity for work

implement right to vocational rehabilitation based on the

ascertaining of a threat of incapacity for work (2004) illness will probably pose a threat to the employees work capacity within five years through vocational rehabilitation, the threat of incapacity for work can be countered and pension expenditures saved

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7. Individual early retirement pension

individual early retirement pension maintained for persons
born in 1943 or earlier

individual early retirement pension abolished for persons

born in 1944 or later

as for persons who have reached the age of 60, the

vocational character of the incapacity for work is emphasised when assessing the right to a disability pension when the person has a long working carrier and the work causes strain

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8. Part-time pension
the benefits for persons who draw a part-time pension are
maintained

persons born in 1946 or earlier can retire on a part-time

pension under current conditions regardless of the year of changing to a part-time pension

the criteria for a part-time pension for persons born in 1947

or later are changed:

age limit 58 years

normal pension accrual from the part-time work, accrual rate halved for the earnings reduction (0.75%/year)
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9. Unemployment pension
current unemployment pension maintained for persons born in
1949 or earlier

new scheme for persons whose right to continued

unemployment allowance starts after 1 January 2007. Right to daily allowance until the age of 65 or possibility of retiring on the accrued pension at the age of 62

the employers liability for an ageing long-term unemployed

persons provision remains the same

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10. Disability pensions and projected pensionable service

new observation period:
the pensionable wage for the projected pensionable service is the average wage for the five years preceding the incapacity for work

criterion:
pensionable earnings of at least 12567 euro (2005 index level) during the last 10 years accrual rate: 1.3% between the ages 50 and 63

special stipulation for young disabled persons and increase of their

disability pensions due to the decrease of the weight of wage index in the pension index formula

coming into force:

for persons who become incapable of work in 2005, according to current legislation, after that gradual coming into force

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11. Adjustment coefficients in the career model

Wage coefficient and pension index

new wage coefficient in the adjustment of the pensionable wages, where the weighting of the changes in wages is 80% and that of the changes in the cost of living 20% pension index in the adjustment of all pensions, where the weighting of the wages is 20% and that of the prices 80%

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12. Pension integration

no pension integration for earnings-related pensions
which start in 2005 or later (exception: pensions from motor insurance and employment accident insurance) the pension can exceed 60% of the wage

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13. Unsalaried periods

from the beginning of 2005:

basis for the old-age pension from the earnings that the daily

allowance is based on: 117% for the maternity, paternity and parents allowance 75% for the earnings-related unemployment allowance and job alternation leave 65% for the others (sickness daily allowance etc.) accrual rate: 1.5% pension rights financed from the scheme which the accrual is based on accrual based on unsalaried periods of child care and studies and on imputed monthly income 540 euro (2005 index level)
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14. Increased life expectancy taken into account

mechanism automatically linked to changes in life
expectancy

secures a stable financing of the earnings-related

pension scheme

implementing a life expectancy coefficient as of

2009, applied on the pensions for the first time in 2010

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15. Pension funding strengthened

funding of the old-age pension increased as of 2003:
aims: as stable a development of the earnings-related pension contribution as possible additional funding by 2013 7.5% of the insured wage sum

dissolution decided on separately

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Private-sector pension scheme NOW

Retirement can be postponed when reaching the age of 65. Then an increment for deferred retirement is paid, amounting to 0.6% a month, i.e 7.2% a year.

ages

23

55

56

58

59

average effective retirement age now

In the early old-age pension the accrued pension is reduced by 0.4% for each month that the pension is taken early, i.e. 4.8% a year.

60

65

age 23 age 55 age 56 ages 5859 age 60 age 65

Pension rights start accruing at a rate of 1.5% a year.

The pension is calculated on the wages for the 10 last years of each employment contract.

A person who becomes unemployed can enter the unemployment path to retirement. Earnings-related unemployment allowance can continue till the unemployment pension. Part-time pension possible. Individual early retirement pension possible on the basis of illness. Pension accrual accelerated to 2.5% a year. Early old-age pension possible. Official retirement age Accrual rate calculated on the basis of the time in employment. Pensionable wage calculated according to current rules on a maximum of the ten last years of each employment contract. Previous employment contracts have transitional provisions.

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NEW age limits and accrual rates

18

53

58

60

62

63

65

68

Persons aged 53-62 have a slightly increased accrual rate of 1.9% a year.

Persons who have reached the age of 63 and who continue working have an accrual rate of 4.5% a year.

age 18 age 58 age 60 age 62

Covered by earnings-related pension provision. Pension accrual starts. Part-time pension possible. Disability pension possible on more lenient conditions that take into account vocational factors. Early old-age pension possible. Accrued pension reduced by 0.6% a month, i.e. 7.2% a year. Person born in 1950 or later who are entitled to continued unemployment allowance are entitled to a pension without any abate. 0.4%/ month increment for deferred retirement, 4.8% / year

ages 63-68 Old-age pension to the accrued amount on ones own initiative. age 68
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