The demographic situation in Austria’s first-pillar pension system will be “dramatic” by the year 2025 and worsen even further over the following decade, according to Christoph Krischanitz, managing director at actuarial consultancy arithmetica.
Only after 2035 will the ratio of active workers and those who have to be cared for – children, the unemployed, the sick and the elderly – level out and stabilise, he said.
Krischanitz argued that, because the second and third pillars are so “weak” in Austria, the problems plaguing the first pillar will hurt the whole of the country’s pension system.
He even went so far as to claim that the concentration of demographic risk was so acute as to be considered “negligence”.
“The Austrian pension system lacks diversification,” he said. “A good mixture of the various pillars is much needed.”
As the first-pillar reforms of 2001-03 go into effect, Austria’s replacement rate is expected to drop gradually to around 60% from the current 80%, but Krischanitz stressed that forecasts were “very difficult” to make.
But he pointed out that the current participation rate of 40% in the second pillar – in which he includes both funded solutions and unfunded, on-book reserves – was clearly too low to bridge this pensions gap.
Krischanitz said the instruments available to provide occupational pensions were generally too complex, and that there were too many small products and providers.
He said this had “scared off” many employers, adding that employees were currently under no pressure from politicians to set up pension plans.
Krischanitz said he was convinced this demand would begin to materialise from 2025, when people start seeing reduced first-pillar payouts, and that there is “no money in the companies either”.
He called on politicians to create tax incentives for companies to set up pension plans – or even to consider legislating a mandatory system.