Third pillar growth unbroken by crisis
GERMANY/AUSTRIA - Interest in third pillar savings funds has remained high even through the financial crisis, according to both the German investment association BVI and the Austrian regulator FMA.
The number of so-called Riester investment fund contracts, the state-subsidised German third pillar funds, increased by another 98,852 to 2,484,966 in the first half of this year.
The German third pillar market is continuing its unbroken growth pattern since its introduction in 2002 but first half growth for 2009 is less than half of that reported at the same time last year when there were 200,377 new contracts (the number grew by 464,064 in the whole of last year).
That said, it seems the crisis has rendered Germans a bit more cautious when it comes to investments and even though there is a guarantee on the money paid into the funds. (See earlier IPE article: German employers predict little second pillar growth)
Despite this, the BVI is convinced that the combination of chances for higher returns, guarantees and tax benefits will render the Riester investment funds interesting even in economically difficult times.
In Austria, the FMA reported there has been a similar continuation of growth of the third pillar investments, as contracts for the so-called “zukunftsvorsorge”, which is also state-subsidised, increased by 13.1% to 1,340,758 policies in 2008.
For the first time since the creation of these funds in 2003, the Austrian funds reported a 15.3% negative return in 2008 compared to 1.3% gain in 2007.
These losses have renewed the debate on the compulsory 40% equity quota in these funds. (See earlier IPE story: IMF tells Austria to ‘ease investment restrictions’)
The FMA said insurance companies dominated this section of the third pillar market with a 91.2% market share, while asset managers make up the rest.
“After only five years, every fifth Austrian under the age of 60 has a zukunftsvorsorge contract,” noted the FMA.
According to the statistics, people preferred long-term products as six out of 10 contracts were signed for 25 years or more, and almost 20% are to be held for as much as 45 years.
By law, a zukunftsvorsorge product has to be signed for at least 10 years, which is also the maximum duration offered by asset managers. Only insurance companies offer longer-term contracts.
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