AUSTRIA - Investing in equities is unsuitable for pension fund investment, according to Helmut Kramer, the former head of Austria's economic research centre Wifo.
In a white paper written for the banking group Raiffeisen, he claimed the hypothesis that equities are suitable for retirement provision in the long-term has "long been proven wrong".
"Retirement provision through equities is very unsafe as a certain return has to be achieved at a certain point in time," noted Kramer.
He added this was not possible with equities as over the last 130 years equity returns have been influenced at various stages by a number of ups and downs.
While "over the long-term equities are the most profitable investment", lower returns and losses can occur in the short-term, he explained.
"For the baby-boomer generation, that is persons aged 50 and above, who are expecting a considerable part of their retirement provision to come from equity returns, the current situation could be seen as precarious," said Kramer.
He believes the attempt to use equities in pension funds to lower the investment risk has "failed".
"In light of the crisis, it turned out that savings accounts and even cash were retaining their value better over the course of a decade than the financial assets of pension funds," said Kramer.
Interestingly, however, he does argue in favour of using the lifecycle model which automatically lowers the equity exposure in a portfolio when a person is nearing retirement.
According to Kramer, the fact that the Austrian second pillar is comparatively young "helped ease the currently difficult situation".
Meanwhile, centre-right politician Reinhold Lopatka, who chaired the Pensionskassen reform commission in Austria, has confirmed that a compulsory introduction of the lifecycle model was on the table during the discussions but no definite agreement has been reached. (See earlier IPE article: Austrian pension fund doubts value of reform)
He himself would like to see a "choice" when people are nearing retirement, in part as some experts have criticised lifecycle models. (See earlier IPE article: Life cycle investment is 'utter nonsense', claims IPE winner)
In a statement on the parliamentary homepage, Lopatka also announced that the supervisory body FMA will in future each pensionskasse to build a certain level of buffer fund with money from its profits.
While further discussions are ongoing the government wants to present parliament with a draft for a reform of the pensionskassen before the summer break which could then be passed in fall.
If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email firstname.lastname@example.org