AUSTRIA - The Austrian Pensionskassen system has been harshly criticised in the wake of the financial crisis but no politician can seriously think about abolishing the system, claimed Andreas Zakostelsky, head of the ÖPAG Pensionskasse.

In recent weeks politicians, largely from the right-wing FPÖ as well as the Social Democrats, and worker representatives have labelled the Austrian pensionskassen system a "pension trap", have criticised calculation rates and called for financial aid similar to that granted to banks.

"But no politician is seriously thinking about abolishing the system - at least not if you talk to them privately," pointed out Zakostelsky during an ÖPAG event for journalists last week.

In contrast, however, very few politicians were willing to speak out in favour of the system and publically show their commitment to private savings, he noted.

Pensionskassen have been demanding, during negotiations hosted by the second pillar reform commission, the introduction of flexible contributions for employers and employees.

"Many SMEs are not currently implementing a pensionskasse because contribution rates are not flexible and it would be easier, for example, if bonuses paid to employees for projects could be put into a pensionskasse," suggested Zakostelsky.

Pensionskassen have also proposed the creation of a "safety pension" which would calculate pension assets at a lower calculation rate, to ensure fewer losses in times of crisi.

Members choosing this option could then also opt for the creation of a reserve fund (pensionssicherungsverein) to be filled from contributions to the safety net fund.

At the same time as arguing for changes to boost the pensions market, the ÖPAG also reported it saw a -9% return for 2008, albeit this is better than the Austrian average return of -13%.

The fund's equity exposure fell 30% at the beginning of 2008 to 15% at the end of the year and 40% of this drop was down to active reduction of equity holdings.

The other losses were down to a devaluation of the fund's equity holdings, as the asset class lost up to 45% on average and equities in emerging markets lost 50% in value.

Only government bonds performed positively in the portfolio with a 10% gain.

ÖPAG introduced an investment grade overlay to its portfolio last year In its bid to decrease volatility in the portfolio and make hedging positions possible more quickly.

"At the moment, our equity exposure is at around 10% but we are ready to up it to as much as 20% should the opportunity arise," said Walter Schmoiger, asset manager at ÖPAG.

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