EUROPE - Austria's planned guarantee for some pension fund benefits will mean "only higher costs and no advantages" for members, according to Michaela Plank, a pension fund expert at Mercer.
The Austrian Finance Ministry, after more than two years of negotiations, presented at the end of November a draft amendment to the law governing Pensionskassen that includes, among other things, a "safety pension" option with guarantees.
But Plank said introducing guarantees to Pensionskassen would only lead to higher costs for members, but "unfortunately no advantages".
She pointed out that there was already a guarantee product in place, the so-called Betriebliche Kollektivversicherung (BKV), an insurance-based occupational pension solution.
"Pensionskassen are not made for guarantees," she said. "And why not use what already exists on the market?"
However, Plank was more positive on other points - such as the increased choice of investment styles for members - but she noted that this would also increase the need for member consultation and information.
She argued that the reform in no way resolved the problem of prior contracts with too high discount rates, but she said some of the "old burdens" would be removed by not allowing any of the new contracts to be signed off with discount rates above the legal maximum of 3%.
She also recommended using this proposed amendment as a foundation for an expert commission to find a solution for members in older contracts.
These relatively generous supplementary pensions had been transferred to Pensionskassen in the 1990s when it was believed that 6% or more could be made on the capital markets over the long run.
Meanwhile, representatives of these members who had seen their pensions being slashed by as much as 40% have filed a complaint with the parliamentary president Barbara Prammer to protest against the Pensionskassen system.
Austrian Pensionskassen reported an average loss of 4% year to date, falling by 2.8% in the third quarter alone.
Assets under management in Pensionskassen contracted by 2.3% to €14.5bn, while assets in the BKV increased by 2.1% to €490.6m.
According to statistics recently released by the supervisor FMA, the net equity exposure in Pensionskassen (after hedging) was 18.8%, compared with more than 25% unhedged, which helped the funds survive the steep drop of the Austrian ATX index of 29.6% in the third quarter.
The figures also show that 93.4% of the assets in Pensionskassen are invested via funds, and that around 4.7% are designated as held-to-maturity, a valuation that can be extended under the new regulations.