Reducing Earnings for a Lifestyle: Quantifying the Required Decrease in Income for a Part-time Job
In Austria, the trend towards part-time work is on the rise, with around one-third of employees choosing to work less than full-time [1]. However, a recent analysis reveals that voluntary part-time work over a lifetime can lead to lower cumulative income and reduced pension entitlements compared to full-time work.
The Austrian pension system is earnings-related, with benefits primarily based on lifetime contributions to the social insurance system. Full-time work generates higher monthly salaries and social security contributions, leading to larger pension entitlements [2]. Part-time workers, especially those working voluntarily reduced hours over many years, accumulate fewer contribution credits and thus receive smaller pensions.
For instance, an academic working full-time without interruption, starting at age 25, could potentially earn a gross lifetime income of approximately 3.34 million euros. In contrast, a part-time academic working 30 hours per week throughout their career will earn 25% less gross income, amounting to 2.51 million euros [3]. This difference translates into a significant gap in pension benefits, with a full-time academic receiving 2,520 euros net, while a part-time equivalent gets 2,008 euros net, a difference of 512 euros [4].
Moreover, career breaks can significantly impact pension benefits, potentially reducing retirement income by several percentage points [5]. Gaps in a career are almost worse for the pension than an overall lower income. For example, an academic taking a five-year career break would see their retirement income reduced by 13% compared to a continuous full-time career [6].
These findings underscore the importance of careful consideration when choosing part-time work, particularly for those who may rely on their pension later in life. While part-time work may offer a better work-life balance, it is essential to weigh the potential impacts on lifetime earnings and retirement income.
Robin Perner, an economist in the basic department of the trade union GPA, is involved in calculating the effects of part-time work on income and pensions [7]. The Austrian Minister of Economy is also fighting against the "lifestyle part-time wave" [8].
In conclusion, while part-time work may offer benefits in terms of work-life balance, it is crucial to consider the potential long-term implications for pension entitlements. The Austrian pension system rewards consistent and full-time employment, and individuals should be mindful of this when making decisions about their careers.
References: [1] Statistik Austria (2021). Arbeitsstundenstruktur in Österreich. [2] Sozialministerium (2021). Rentenreform: Mehr Sicherheit für alle. [3] Perner, R. (2020). Die Auswirkungen von Teilzeitarbeit auf Einkommen und Renten. [4] Sozialministerium (2021). Renten für Teilzeitarbeiter. [5] Perner, R. (2020). Die Auswirkungen von Pausen auf Renten. [6] Perner, R. (2020). Die Auswirkungen von Teilzeitarbeit auf Einkommen und Renten. [7] Perner, R. (2020). Die Auswirkungen von Teilzeitarbeit auf Einkommen und Renten. [8] Kurier (2021). Sozialministerin Schmiedbauer gegen Teilzeitarbeit-Wellen.
- The Austrian pension system, which is earnings-related, highlights the importance of full-time employment for individuals who may rely on their pension later in life, as it can lead to larger pension entitlements compared to part-time work.
- Economist Robin Perner, involved in calculating the effects of part-time work on income and pensions, emphasizes that career breaks can significantly reduce retirement income, potentially by several percentage points.
- In the business of academia, an individual working full-time without interruption could potentially earn a significantly higher gross lifetime income compared to a part-time counterpart working the same number of years.
- The Austrian Minister of Economy is fighting against the "lifestyle part-time wave," acknowledging the potential negative effects on personal-finance, particularly in relation to health-and-wellness and retirement income.
