Reform of Severance Pay Law in Austria - mutual learning programme

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DISCUSSION PAPER Figure 1: Severance Pay Reform in Austria Severance Pay in terms of last monthly wage 2 3 4 6 9 12 15 Severance pay reform in Austria Old vs. new scheme 0 3 5 10 15 20 25 30 37 40 Years of Service New Scheme* Old Scheme *Calculation based on the assumption of 3% real wage growth and 6% real return on assets Source: Koman et al. (2005) While at the former system the maximum level of severance payment is reached after 25 years of employment with the same employer, under the “new system” the claim increases progressively. The MVK’s invest the employers’ contributions in the capital market, therefore the level of severance payment depends on the annual net yield. Figure 1 shows the evolution of severance pay claims in terms of the individual’s last monthly wage in the former vs. the new scheme (Koman et al. 2005). While in the former system severance payments increased in stages and reached the maximum level after 25 years of employment with the same employer, in the new system the severance pay will rise continuously and reach the maximum value of the former system after 37 years. These calculations assume a rather high rate of return of 6 percent per annum. 3.2.1 Quantities of the employees and employers linked to the new system The new severance pay system is applicable to all employment contracts concluded after the new law came into force (1 January 2003). For employment contracts concluded before January 2003 the possibility of arranging a transfer from the former to the new severance pay system has been provided for. The transfer to the new system is only possible by a mutual agreement between the employer and the employee. 30 Nov - 1 Dec 2006 Peer Review Reform of Severance Pay Law, Vienna 12
DISCUSSION PAPER Figure 2: Persons linked to new severance pay low Persons linked to new severance pay law 27,000 2,100,000 25,000 1,900,000 1,700,000 23,000 1,500,000 21,000 Persons Transfers 1,300,000 19,000 1,100,000 900,000 Mai.04 Jun.04 Jul.04 Aug.04 Sep.04 Okt.04 Nov.04 Dez.04 Feb.05 Apr.05 Mai.05 Jun.05 Jul.05 Aug.05 Sep.05 Okt.05 Nov.05 Dez.05 Source: Main Association of Austrian Social Security Institutions Figure 3: Share of Employees covered by the new severance pay law Feb.06 Apr.06 Mai.06 Jun.06 Jul.06 Aug.06 Sep.06 17,000 15,000 Share of employees covered by new severance pay law 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% Dez.04 Feb.05 Apr.05 Mai.05 Jun.05 Jul.05 Aug.05 Sep.05 Okt.05 Nov.05 Dez.05 Feb.06 Apr.06 Mai.06 Jun.06 Jul.06 Aug.06 Sep.06 Source: Main Association of Austrian Social Security Institutions, own calculations Up to now almost 2m persons acquired claims in the new severance pay system (see Figure 2). Figure 3 shows the share of all employees in the new system, which are employed in the respective month, over all employees. In September 2006 almost 40 % of the workers are already 30 Nov - 1 Dec 2006 Peer Review Reform of Severance Pay Law, Vienna 13
Page 1 and 2: DISCUSSION PAPER Reform of Severanc
Page 3 and 4: DISCUSSION PAPER According to these
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Page 9 and 10: DISCUSSION PAPER In the new system
Page 11 and 12: DISCUSSION PAPER Koman et al. claim
Page 13 and 14: DISCUSSION PAPER Kristen, S., Pingg

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