The start of your retirement from a tax perspective: Provisions, tips and strategies for a carefree old-age retirement

Before the start of your retirement

Application

To ensure that your transition into retirement goes smoothly, you should submit your retirement application to the pension insurance fund about two to three months before your planned retirement date and inform your employer accordingly.

Severance payment according to the old scheme (“Abfertigung Alt”) and the new scheme (“Abfertigung Neu”)

If your employment contract was concluded before 1 January 2003, you are eligible for “Abfertigung Alt”. “Abfertigung Alt” takes in consideration the duration of the employment contract, the type of termination of the employment contract and, where applicable, previous periods of service.

“Abfertigung Neu” is applied to all employment contracts concluded on or after 1 January 2003. In the case of “Abfertigung Neu”, the employer has to pay 1.53% of the gross pay to an employee severance fund (“Betriebliche Vorsorgekasse”) from the second month of employment. After a minimum of three years, employees can receive their severance payment under certain conditions or leave it with the employee severance fund, where it will be further invested.

Pension account

For all individuals born on or after 1 January 1955, a pension account is established, where all insurance periods and contribution bases acquired by the account holder during their working life are recorded. The total credit divided by 14 results in the monthly gross pension, taking into account any deductions or bonuses depending on the retirement date. The current status of the pension account can be retrieved at any time here: https://www.neuespensionskonto.at/pensionskonto/.

During the old-age retirement

Options to continue working

Whether for financial reasons or out of passion for the profession, more and more people are choosing to continue working during retirement or even postpone it.

1.Continued employment during old-age retirement

During old-age retirement, employment can be continued without any limit on additional income and the pension is not reduced as a result. However, you are required to submit an employee tax assessment in the following year and additional income tax payments should be expected.

An exception applies if retirement begins before the statutory retirement age – in this case, additional income is generally allowed only up to the low income threshold (“Geringfügigkeitsgrenze”) without losing the pension.

2. Postponed start of retirement

If you have already reached the statutory retirement age and have not yet applied for your retirement, you receive an additional 5.1% for each year (or 0.425% per month) that the retirement is postponed. In addition to this bonus, continued employment increases the pension through ongoing contributions to the pension account.

Furthermore, in the case of a “pension postponement”, the contribution rate for pension insurance is halved to 5.125% for employees and 6.275% for employers. This increases the net income for employees and consequently reduces ancillary wage costs for employers.

Special topics that need to be taken into account

1.Receiving multiple pensions

If retirees receive multiple pensions from statutory social insurance or pensions from multiple Austrian pension funds, these pension payments are taxed jointly. In such cases, the entity paying the pension with the highest taxable amount or the highest pension handles the joint taxation.

However, if retirees receive, for example, a company pension in addition to a statutory pension, joint taxation is not possible. The pension amounts must be disclosed in the employee tax assessment. Since each entity paying the pension calculates the wage tax only for the payments it makes, the total wage tax withheld is generally insufficient. Therefore, in such cases, a retrospective tax payment is expected during the employee tax assessment.

2. Pensions containing a foreign element

A person is subject to unlimited tax liability if they have their residence or habitual abode in Austria. In this case, their entire worldwide income (including, for example, foreign pensions) is subject to taxation in Austria. Whether foreign pensions are subject to income tax in Austria depends on the type of pension and the relevant Double Taxation Agreement (DTA). If, according to a DTA, the taxation right for foreign pension income is allocated to Austria, this foreign income must be reported using Form L 1i and, if applicable, also Form L 17 in the employee tax assessment.

Our P&O experts are happy to help you with issues arising in this context.

3. Employee tax assessment

In the employee tax assessment, all pensions are totalled and taxed as if the retiree had received the entire amount in the form of a single payment. This achieves equality between retirees and employees, as all income is subjected to wage tax as a total amount.

If you continue to work actively while receiving an old-age pension, thereby earning income from employment, a mandatory employee tax assessment must be submitted. In this case, all of your income will be subject to wage tax and a retrospective tax payment is to be expected.

Retirees can claim the pension tax deduction in the employee tax assessment. Additionally, special personal expenses and income-related expenses can be deducted during retirement in the employee tax assessment as well, provided all conditions are met.

If you need more information on the employee tax assessment in connection with pension, our P&O experts are here to help.

Hot topic: Pension adjustments 2025

1. Pension increase

Pensions were automatically increased on 1 January 2025. The exact amount of the adjustment depends on the total monthly gross pension income. For a total pension income of up to EUR 6,060.00, the increase is 4.6%. For pension income starting from EUR 6,060.01, the increase is EUR 278.76.

The adjustment delay was suspended for the year 2025, meaning that all pensions with a reference date in 2024 also benefit from the full pension increase.

2. Increase of the contribution to health insurance for pensions

On 1 June 2025, a change came into effect, increasing the contribution rate for health insurance for retirees from 5.1% to 6%. This increased contribution rate also applies to foreign pensions.

For recipients of a compensatory allowance, the increased health insurance contribution rate of 6% only applies starting January 2026.