Pension Reform in Germany and Austria: System Change vs. Quantitative Retrenchment

Abstract

This article first outlines the differences in outcome of pension reform in Germany and Austria. The 2001 German pension reform cut benefits very little, but it started a system changing transformation process by strengthening the second (occupational pensions) and third pillar (private pensions). The 2003 Austrian pension reform, pushed through against major opposition from the labour unions, contains very few elements of policy innovation, but benefits have been cut back much more significantly than in the German case. The paper explains the difference in outcomes (system change in Germany, retrenchment in Austria) by looking at the structure of political institutions. The federal government in Austria is much less constrained by formal veto players than the German government, which had to engage in extensive coalition-building to get the pension bill through the second chamber of parliament. Therefore the influence of informal veto players (mainly unions) was much higher in Germany. The impact on the reform outcome was the positive discrimination of occupational pensions and less severe cuts in the benefit levels. The concluding thesis is that for successful and long-term sustainable welfare state reform, a small number of formal veto players is a valuable resource. A large number of formal veto players is an obstacle to retrenchment reforms, although it might encourage policy innovation, because political actors will look for other policy venues to increase their leverage.

Notes

The certification is done by a federal agency. The criteria for obtaining a certificate are: guarantee of the nominal value of the payments made, the assets will be paid in monthly rates if the person has reached the age of 60 (no lump sum payments), cost transparency (Bundesregierung 2004; Schmähl 2004: 184).

In absolute terms, in 2008, those who invest at least 4 per cent of their gross wages will receive up to €150 (€300 for couples) as maximum allowance (plus a maximum of €180 per child per year). The total expected amount of subsidies and tax exemptions is €11 bn (Lamping and Rüb 2002: 9).

The standard pension is an abstract orientation device. It is the pension that the standard pensioner, who has worked and paid contributions for 45 years and had average earnings each year, will receive (Bundesregierung 2004).

Seeleib-Kaiser 2003, Schmähl 2004, Leibfried and Obinger 2004 speak of a reduction from 70 per cent to 64 per cent, while Kohl 2001, Lamping and Rüb 2002, and official documents (VDR 2001; Bundesregierung 2004) speak of a reduction from 70 per cent to 67 per cent.

This view stands in contrast to the explicit inclusion of a guarantee to maintain the 67 per cent level in the final bill.

Cf. http://www.sozialversicherung.at/esvapps/page/page.jsp?p_pageid = 110&p_menuid =7963&p_id = 4.

Cf. EIU Country Report Austria, May 2003: 20.

http://www.fpoe.at/.

The government's 2002 pension strategy mentions the expansion of the second and third pillars, but only as a minor point among others (Bundesregierung Österreich 2002: 6).

Cf. the website of the Bundesrat at http://www.parlament.gv.at.

Normally, bills emerge out of the government's bureaucracy and not from the parliamentary arena. The government is obliged in a formal process (the Begutachtungsverfahren) to listen to the statements of the social partners. This is the single most important formal veto position of the social partners, which is in fact not a strong position, because the government is not obliged to adopt the position of the social partners.

Lamping and Rüb 2002.

The Kohl government was confronted with a majority of SPD-governed Länder during most of the 1990s, whereas Schröder has lost this majority in 1999 and is now confronted with a much more coherent block of CDU-governed states.

The new party secretary general, Laurenz Meyer, for example, presented a very controversial election campaign advertisement showing Chancellor Schröder as a criminal. The crime he was accused of was the pension reform. This coup however created a huge political backlash and the CDU was forced to apologise to Schröder and withdraw the advertisement.

In addition to that, the ceiling up to which the subsidies can be claimed is much higher for earnings conversion than for the Riester-Rente and is also adjusted dynamically (Schmähl 2004: 187).