AUSTRIA - Buoyed by strong equity markets, Austrian pension funds finished 2005 with an average return of 11.4% on assets, according to fund association FVPK.

FVPK said the double-digit return for 2005 was not only the highest in years for the schemes but also far above original expectations of between 5%-7%.

According to the FVPK, Austrian pension funds allocate one-third of their Û11.5bn in total assets to equities. Roughly another two-thirds are invested in fixed income, with the small remaining portion going to real estate and alternative classes.

However, FVPK president Christian Bšhm noted that amid persistently low interest rates in the euro zone, it was getting difficult for pension funds to achieve decent returns with government debt.

As a result, Bšhm said the schemes were allocating more money to higher-yielding products like corporate and emerging market bonds. More money was also being shifted to real estate, though investors were taking the indirect approach in buying property funds and shares, he told a press conference in Vienna.

FVPK also said the number of workers owning a corporate pension rose 6.5% in 2005 to 440,000 - or one-fifth of the entire workforce. This compares to around 60% in Germany and as much as 100% in the Netherlands and Switzerland.

Bšhm said that while corporate pensions were spreading in Austria, a lot more needed to be done to institutionalise them. Austrian workers still rely on the state pension, which will decline in the future, for 93% of their retirement income.

To boost demand for corporate pensions, the FVPK has called on the government to permit tax write-offs to companies and employees who contribute to standing corporate schemes.

The association also expects employers and unions to create more corporate pension schemes in future collective bargaining.