From 2027: contribution relief and tax‑free allowance for workers at statutory retirement age

A current ministerial draft provides for the introduction of an “Attractive Working in Old Age” model.
The objective pursued by the Federal Government is to increase the employment rate of older persons and to raise the effective retirement age. In particular, the focus is on two key measures:

1. Adjustment of the pension deferral bonus as of 1 January 2027

The existing provision for persons deferring their statutory retirement pension (Section 51 para. 7 ASVG) – currently a 50% reduction of pension insurance contributions (employee and employer shares) for a maximum period of three years (deduction code A15) – is to be amended with effect from 1 January 2027:

• In future, not only pension deferrers but also pension earners with additional income (i.e. persons who are gainfully employed while already receiving a statutory retirement pension) are to benefit from the scheme.
• The employee’s share of the pension insurance contribution is to be waived in full, while the employer’s share is to be paid in full and without any reduction.

2. Introduction of an “activity allowance” as of 1 January 2027

From the point at which the statutory retirement age is reached, gainfully employed persons are to be granted a monthly tax-free allowance of EUR 1,250.00 (EUR 15,000.00 per year) (new Section 105a Austrian Income Tax Act – EStG).

As a rule, the allowance is to apply both to pension deferrers and to pension earners with additional income (i.e. persons who are gainfully employed while already receiving a statutory retirement pension). However, for pension earners with additional income, a minimum insurance period is required, namely:

• for men: 480 insurance months (40 years),
• for women: 408 insurance months (34 years), whereby the requirement for women is to be gradually increased from 2028 to 2033 – by 12 months per year – up to 480 insurance months (40 years).

Note: Recipients of a partial pension are not required to meet the above minimum insurance period (and are therefore, due to their partial pension receipt, treated in the same way as pension deferrers).

For income subject to wage tax, the activity allowance is to be taken into account directly within payroll accounting, provided that the taxpayer submits a corresponding declaration to the employer and furnishes evidence that the relevant requirements are met.

Link to the draft bill:
https://www.parlament.gv.at/gegenstand/XXVIII/ME/96

Practical remarks

For payroll purposes, the tax authorities will presumably introduce a new tax form as of 1 January 2027, which older employees will be required to complete and submit to the payroll department.

From a practical perspective, the following points in particular appear open to criticism:

• the pension contribution relief applies only to the employee’s share (resulting in a deterioration for employers compared to the existing scheme), and
• in the case of pension earners with additional income, the tax-related “activity allowance” does not automatically run in parallel with the pension contribution relief due to the additional minimum insurance period requirement.

According to the draft bill, other remuneration pursuant to Section 67 EStG (holiday pay, Christmas bonus, etc.) does not qualify as income eligible for the activity allowance (Section 105a para. 3 EStG in the proposed version).

Presumably, the legislators take the view that, in light of the tax-free threshold for special payments (currently EUR 2,615.00) or the generally low wage tax rate of 6% applicable once this threshold is exceeded, there is no need to extend the activity allowance to special payments.