Austria to Let Retirees Earn Up to €15,000 Tax-Free from 2027 in Push to Tackle Labour Shortage

Austria's reform offers up to €15,000 tax-free income for retirees, aiming to fill 400,000 worker gap by 2040, plus corporate pension overhaul from 2028.

Austria’s government has unveiled a sweeping package to make working past retirement age financially attractive, as official projections warn the country will lack roughly 400,000 workers by 2040. The centrepiece of the plan, approved by the Council of Ministers on 10 July, is a tax-free allowance of up to €15,000 per year on employment income earned after reaching pension age, effective from 1 January 2027.

Under the new rules, retirees who keep working will no longer pay income tax on the first €1,250 of monthly earnings. The government also abolished the employee’s share of pension insurance contributions for those in work, while self-employed individuals will receive equivalent relief. According to official calculations, around 150,000 people are expected to benefit. A typical office worker with a moderate top-up salary would save more than €8,000 annually.

The so-called Aktivitätsfreibetrag (activity allowance) is tied to insurance years. Individuals must have completed 40 contribution years to qualify. For women, a lower threshold of 34 years applies initially, rising step by step to 40 years by 2033. Those who retired before 1 July 2026 can retroactively acquire additional insurance years to meet the requirement.

The law is due to pass through parliament in the autumn. Business groups have pressed for swift enactment, warning that payroll software needs time to adapt to the new exemptions.

Corporate Pension Overhaul from 2028

The package also strengthens the second pillar of Austria’s pension system. From 2028, all employees will gain access to company pension schemes. A key provision allows workers to transfer their severance pay entitlements (Abfertigung) into pension funds or life insurance policies.

Asset-management fees for these funds will be cut from 0.8 percent to 0.6 percent. The government also plans an automatic consolidation of separate severance accounts and the creation of new pooled investment vehicles. In a parallel move, labour ancillary costs will drop by one percentage point from 2028 — a measure the cabinet estimates could create up to 12,000 new jobs.

Demographic Drivers and Budget Context

The reform responds to a rapidly ageing population and a chronic shortage of skilled labour. Austrian Economic Chamber (WKÖ) president Martha Schultz welcomed the initiative, describing the “Aktivpension as a real incentive” in a statement on Sunday. “Encouraging longer working lives not only supports economic stability but also helps prevent old-age poverty,” she said.

The package forms part of the double budget for 2027 and 2028, which includes a consolidation volume of €5 billion. While the government is pushing investment and relief measures, it has also set a pension increase below the rate of inflation. Ruling-party parliamentarians August Wöginger and Andreas Ottenschläger praised the reforms as a contribution to generational equity and Austria’s competitiveness as a business location.