The new severance scheme: how the provision fund works
What your employer pays in every month, when you can touch the money, and why resigning does not cost you a cent of it.
For every job in Austria that started on or after 1 January 2003, the employer pays 1.53 % of monthly pay, including holiday and Christmas pay, into a company provision fund (Betriebliche Vorsorgekasse, BV-Kasse), with no marginal-earnings floor and no contribution ceiling (section 6 of the Company Employee Provision Act, BMSVG). On €3,000 gross that is €45.90 per payment and €642.60 a year, or €6,426 after ten years before any investment returns. The first month is contribution-free unless you return to the same employer within twelve months. The balance is yours and travels with you from job to job, which is why Austrians call it the backpack (Rucksack). You may only decide what to do with it when a job ends, once you have 3 contribution years (36 months), and only if you did not resign, were not dismissed for misconduct and did not walk out without cause. Then you can cash it in at 6 % tax, leave it invested, move it to your new employer's fund or transfer it tax-free into a pension plan. Say nothing for six months and it simply stays invested.
Your balance in the provision fund
Paid in (before returns)
€6,426
| per year | €642.60 |
| after 6% tax | €6,040 |
| Payout possible | yes, depending on how it ends |
Checked by Radif Partners · Editorial policy · Calculation method
How the balance builds up
Your employer sends the contribution together with social insurance to your health insurer, which passes it on to the provision fund. The base is pay as defined in the General Social Insurance Act, and section 6(5) BMSVG says expressly that neither the marginal-earnings limit nor the contribution ceiling applies. A marginal job (geringfügige Beschäftigung) therefore builds severance too, and a high earner gets the contribution on the full salary.
| Monthly gross | Per payment | Per year (14 payments) | After ten years |
|---|---|---|---|
| €1,500 | €22.95 | €321.30 | €3,213 |
| €2,500 | €38.25 | €535.50 | €5,355 |
| €3,000 | €45.90 | €642.60 | €6,426 |
| €4,500 | €68.85 | €963.90 | €9,639 |
| €8,000 | €122.40 | €1,713.60 | €17,136 |
During partial retirement, partial pension, reintegration part-time, short-time work and some other forms of reduced hours, the employer calculates the contribution on pay before the reduction (section 6(4)). Your backpack keeps filling as if you worked full time.
The backpack principle
Unlike the old severance scheme, the claim is not tied to one employer. Each employer pays into its chosen fund, and contribution months from all jobs are added up for the three-year test. Every fund sends an annual statement showing contributions, returns and costs. If you collect balances in several funds, you can ask one of them to move the others along when you make your decision (section 14(6)). Many expats discover two or three small balances only when they leave; the statements are worth keeping.
When you may decide
You have a claim whenever a job ends. Under section 14(2) BMSVG you may not dispose of it if
- you resigned, except during parental part-time under the maternity or paternity leave acts,
- you were dismissed for misconduct or walked out early without good cause,
- fewer than 3 contribution years have passed since the first payment or your last decision.
Whatever the reason the job ended, if you are not working you can always decide once you draw your own pension, reach the age for early or corridor retirement, or no contributions have been paid for you for at least five years (section 14(4)). At €3,000 gross, three contribution years amount to about €1,928 of contributions.
Four options after the job ends
- Cash payout: the whole amount to your bank account, with 6.0 % wage tax withheld by the fund.
- Keep it invested: the money stays in the same fund until you retire or decide otherwise later.
- Transfer: to your new employer's fund or to a self-employed provision fund, so everything sits in one place.
- Pension transfer: to a pension fund you already belong to, a group pension insurance, a supplementary pension insurance or the voluntary additional pension insurance, tax-free.
These are the options in section 17(1) BMSVG. They always cover the whole balance; the law has no partial payout. Even if you may not decide, you can pull the balance into your current fund once it has been contribution-free for at least three years since the job ended (section 17(2a)).
Your balance in the provision fund
Paid in (before returns)
€6,426
| per year | €642.60 |
| after 6% tax | €6,040 |
| Payout possible | yes, depending on how it ends |
Tax: 6.0 % or nothing
Under section 67(3) of the Income Tax Act, lump sums from provision funds are taxed at 6.0 %. If the money goes to an insurer for an annuity, to a pension fund or into a tax-favoured pension investment fund, there is no wage tax. On ten years at €3,000 gross that is €386 difference between cash and transfer, counting contributions only.
What the fund earns
The provision fund invests the money; returns vary from year to year and we do not forecast them. The mini calculator therefore shows contributions only. In the severance calculator you enter a rate yourself: an assumption of two percent would turn €6,426 into €7,036 after ten years, zero percent leaves the contributions. That is not a prediction; your real balance is on the annual statement. What the contribution costs your employer on top of salary is shown by the employer cost calculator.