Austria relaxes second-pillar rules to bolster assets
AUSTRIA - The Austrian government has relaxed the rules governing the country’s second-pillar occupational pension plans in an attempt to strengthen their asset base.
The finance ministry has amended the Pensionskassen Act 1990 so that pensionskassen no longer have use their capital to meet their guaranteed performance targets.
The pensionskassen, which are structured as joint stock companies, are required to meet a certain performance target over a five-year period. This target is linked to the interest rates of government bonds and may move up or down.
Under the existing legilsation, a pensionskasse that fails to achieve this target must make up the shortfall from its capital base. This has affected their long-term investment startegy and their ability to invest in the riskier asset classes.
Under the amended legislation, a pensionskasse that fails to acheive the minimum performance target is no longer obliged to close the gap with a peyment from its capital. However, it must ensure that it pays enough into pensions in payment to ensure that the level of benefit for retired members is maintained.
The amended PKG also introduces the idea of a performance guarantee reserve. The aim is to strengthen the capital base of the pensionskassen and provide additional security for beneficiaries, since the assets in the reserve will be specifically linked to the performance guarantee.
The changes to the law follow three years of poor performance on the capital markets. The pensionskassen, which traditionally invest cautiously, reported a return of minus 6.3% last year.
Fritz Janda, managing director of the Association of Austrian Pension Funds in Vienna, commented: “The amendment solves the problem of reconciling the short term performance guarantee regulation formula and the long term investment horizon of pensionskassen, while at the same taking into consideration the interests of retirees.
“The PKG amendment involves no reduction of the pension, the guarantee formula is unchanged and pensionskassen can continue to invest on a long term scale”
The 13 single employer and seven multi-employers pensionskassen have 344.000 members, some 11% of the workforce, and have assets under management of 8.3 billion euros.