AUSTRIA - The Austrian government will announce this week details of the Abfertigung neu, the reformed severance payment system that will vastly expand Austria’s corporate pensions market.

Crucially, it will decide who will run the system - the Austrian pensionskassen, the insurers, or the banks. It will also decide whether it will be handled alongside their existing pensions business or will need an entirely new vehicle, the “Abfertigungkasse”.

A draft proposal for the Abfertigung neu is one of the topics on the government’s agenda on 8 March.

Under the current Abfertigung system, employers set aside payments for each employee which guarantees the a proportion of their earnings if they are made redundant or retire. Although originally intended designed as redundancy payments, 80% of severance payments are paid out as lump sums on retirement.

The government wants to reform the system so that Abfertigung can be use to build up retirement annuities. Proposals for reform have been discussed for more than a year. Last October, the social partners – industry and unions – agreed on a 14 point plan.

The key point is the employer’s contribution of 1.53%, a compromise between the employers’ plea for no more than 1.4% and the unions’ demand for 2%. Almost all employees in Austria are covered and total contributions are estimated at E218bn a year rising to E1.5bn

The government has said that it wants the reformed system in place by 1 July. This will give them little time, since the draft must be discussed in parliament before it becomes law.

Meanwhile, some basic structural issues are still to be resolved. The new system is likely to be a defined contribution (DC) system rather than the current book reserve system. The government will have to decide whether the transition should be gradual or immediate, with new DC contracts in operation from 1 July

More important, the government has to decide who will manage the new system Austria’s 18 Pensionskassen, created since the pension fund reforms of 1990, see themselves as the natural choice. Fritz Janda, managing director of the Austrian Association of Pensions Funds (Fachverband der Pensionskassen) said: “We think this system should handled by the pensionskassen and I think we are very near to this aim.”

Individual funds are also interested. Martin Cerny, manager of client services at Vereinigte Pensionskasse, one of Austria’s seven multi-employer funds, said “We would love to handle the new severance payment accounts.” He added that the fund would also be prepared in handle them as separate, “ring-fenced” Abfertigungkassen, if that was the government’s decision.
However, the Pensionskassen face one obstacle to Abfertigung new business in the EU’s proposed pensions directive. Articles 6a and 7 of the directive restrict the business of occupational retirement provision instituions to retirement benefits and related activities

“These restrictions are not acceptable to us,” says Janda. “ There is no reason and no need for a restriction as long as the assets are in separate legal entities such as the investment and risk-sharing groups.”