Abfertigung (Austrian Severance Pay, Old/New System)

Concept

Abfertigung is an Austrian employment-law lump-sum payment due to an employee upon termination of employment. For employment relationships that began before 1 January 2003, the old system (Abfertigung ALT) applies: entitlement first arises after three uninterrupted years of service, ranges on a sliding scale between two and twelve months’ pay, and arises on retirement, dismissal by the employer, or termination by mutual agreement, but not on resignation by the employee or dismissal for cause.

Abfertigung NEU and the employee provident fund

For all employment relationships beginning on or after 1 January 2003, the new system (Abfertigung NEU) applies: the employer pays 1.53 percent of gross pay on an ongoing basis into an employee provident fund (Mitarbeitervorsorgekasse, MVK), which invests these contributions and credits them to the employee’s individual severance account. The entitlement remains fully vested – regardless of the reason for termination and across multiple employer changes – and can be taken, once the entitlement conditions are met, as a lump-sum payment, a transfer to a pension fund, or an annuity.

Relevance for insurance practice

For employers with staff still under the phasing-out old severance system, the unfunded severance obligation represents a significant balance-sheet risk that is typically funded through pension backing insurance; for employees under the new system, the employee provident fund is an additional, employer-financed retirement building block whose balance should be considered alongside ASVG pension and private provision when assessing overall retirement adequacy.