This project analyses the effects of an increase of the minimum pension top-up in Austria (beyond the already decided increase for 2023 which amounts to € 1,110.26 for a single person 14 times a year). The level of the minimum pension top-up is not only relevant for pensioners but also for example for receivers of social assistance or receivers of unemployment benefits.
In a short overview the role of the minimum pension top-up within the Austrian system of social security is mapped.
For the analysis of the effects of an increase of the minimum pension top-up the tax-/benefit microsimulation model EUROMOD/SORESI for the year 2023 is used based on EU-SILC 2021 data provided by Statistics Austria. The direct (monetary) consequences of the increase are analysed for pensioners and receivers of social assistance on two levels:
The minimum pension top-up plays a central role in the Austrian social security system. Its amount is not only relevant for pensioners in the statutory pension insurance and in the civil servants' pension system, but also for recipients of social assistance/minimum income, unemployment benefit, unemployment assistance and rehabilitation benefit.
In the context of an implementation of the increase of the minimum pension top-up proposed by Caritas Austria, the fiscal and distributive (poverty risk, income distribution) effects in the area of pension insurance, the civil servant pension system and social assistance/minimum income benefit were simulated with the tax/benefit microsimulation model EUROMOD. In addition, the costs and the number of affected recipients in the unemployment insurance (supplementary amounts, cap on unemployment assistance) were estimated on the basis of aggregated PES-data.
The central parameters of the increase of the minimum pension top-up for single persons (with a corresponding adjustment of the other standard rates) are:
- Scenario 1: corresponding to the calculated at-risk-of-poverty threshold for 2023: € 1,398;
- Scenario 2: between the current level (€ 1,110.26) and the calculated at-risk-of-poverty threshold for 2023: € 1,250.
The minimum pension top-up is paid 14 times a year, so the € 1,398 corresponds to the monthly at-risk-of-poverty threshold of € 1,631 (=1,398*14/12) for 2023 revalued with the CPI (including inflation forecast for 2023).
As a result, the increase in the minimum pension top-up in scenario 1 would cause additional costs of about € 2.3 billion, of which about € 1.7 billion would be accounted for by pension insurance and about € 0.5 billion by social assistance/minimum income benefit. About 600,000 households with more than 1.1 million persons would benefit from the increase in pension insurance, the civil servants' pension system and social assistance/minimum income benefit. 49% of them are women, 37% men and 14% children.
In scenario 2, the additional budgetary expenditure would amount to € 1.0 billion, of which pension insurance would account for € 0.7 billion and social assistance/minimum income benefit for € 0.3 billion. Around 500,000 households with more than 900,000 persons would benefit from the increase in pension insurance, the civil servants' pension system and social assistance/minimum income benefit. 48% of these are women, 36% men and 16% children.
The at-risk-of-poverty rate for the total population would fall by around 4 percentage points in scenario 1 (from around 14% to around 10%), and that for persons over 60 by as much as more than 10 percentage points. In scenario 2, there would be another 2 percentage points overall in the total population (from about 14% to 12%), and even more than 5 percentage points among persons over 60. By household type, the risk of poverty would decrease most for single women and men over 65 and for single parents.
Looking at the change in household disposable income (household level) or weighted equivalized income (individual level), the increase in the minimum pension top-up in both scenarios would particularly benefit households or individuals in the lowest three income deciles.
On the basis of aggregate PES-data, it is estimated that the costs of an increase in the minimum pension top-up in the framework of the unemployment insurance would amount to about € 50 million in scenario 1 and to about € 25 million in scenario 2. While in scenario 1 on average about 70,000 persons would benefit from the reform, in scenario 2 it is about 45,000 persons. However, changes would only occur in the daily rate groups around the old and new minimum pension top-up amounts, i.e. not for unemployment benefit and unemployment assistance recipients with the lowest daily rates.
Financing the increase in the minimum pension top-up could most likely (as it currently is) come from federal tax revenues. Since, according to a study by the Ministry of Social Affairs and the OGM, the funds currently used for the graduated indexation of pensions (higher indexation of lower pensions) hardly have a poverty-preventing effect, they could be redirected toward a (further) increase in the minimum pension top-up.
Pension adjustments over the past ten years have almost always included disproportionately high increases in the minimum pension top-up. In total, the minimum pension top-up standard rate increased by 32.5% from 2014 to 2023, while the CPI rose by "only" 26.4% in the same period. The simulated further increase in the minimum pension top-up would mean a further increase of 25.9% (scenario 1) and 12.6% (scenario 2), respectively, while the projected inflation for 2023 is "only" 6.5%.
Overall, empirical data and economic studies for Austria (ÖNB, WIFO) suggest that low-income households save less not only in absolute terms but also relative to their income. In the wake of measures for low-income households, government revenues also rise, which means that these measures are partly self-financing. In view of the expansion of consumer demand and the associated economic growth, the disposable incomes of households with a below-average savings rate should be increased in particular. Given the high poverty risk rate and the neediness of the recipient households, a large part of the budgetary resources spent on a further increase in the minimum pension top-up should flow directly into consumption.
The (additional) costs of an increase in the minimum pension top-up must ultimately be set against the economic costs of poverty and disadvantage. People of retirement age can hardly influence their income any more. Empirical studies (e.g. Pickett/Wilkinson; OECD) conclude that reduced social inequality is not only beneficial for society as a whole and each of its members, but also for the economy and the environment. Poverty reduction and redistribution thus represent benefits for the society as a whole.
According to the OECD, the most suitable policy instrument for counteracting is redistribution (well designed and implemented) through taxes and social benefits. In addition to monetary benefits, however, improving access to public services such as high-quality education and health care is also important.
