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Need for pensions wake-up call

Austria's newly elected social demo-cratic chancellor, Alfred Gusenbauer, has quite often mentioned second pillar pension provision and the need for changes in the pension system since taking office in January. While some trade unionists fear that this will be a step towards major cuts in the state pension provision, Pensionskassen see new potential for growth.

"We want to raise the number of employees with access to occupational pension provision, mainly via Pensionskassen, from 20% to 50% or eventually even 80%," says Johannes Ziegelbecker, head of the third-largest Austrian Pensionskasse ÖPAG. "Over the last 16 years, we have seen an average annual growth in membership numbers in Pensionskassen of one percentage point. I think we can raise the growth rate to two or three percentage points."

All 19 Austrian Pensionskassen combined have assets of €12.5bn which is less than 5% of GDP; €9.5bn of this is in the six multi-employer funds, the rest in company-specific funds.

Karl Timmel, chairman of the board at Austria's largest Pensionskasse, VBV, is similarly optimistic and explains: "Companies are making the best profits in years and they might be prepared to put away some money for retirement provision for their employees."

But Claudia Rübig from Hewitt, which advises Austrian companies on pension solutions, sees the pressure to set up a Pensionskassen model in a company coming more from the employees: "I do not see that companies are voluntarily putting money into pension company solutions. But if the pressure to do so comes from the employees, or it is a common benefit in an industry, then they have to."

However, awareness of the pension issue has to be raised to create this pressure. "To strengthen the second pillar, people have to be made aware what is happening to their social security pension," Rübig continues, referring to the weakening of the first pillar due to demographic changes. "The topic of pensions is used very emotionally in the public. But if I keep telling people that everything is going to continue as it is, then I am not surprised when they are bewildered at pension cuts."

Markus Zeilinger, chief executive officer at Bonus, one of the smaller, independent Pensionskassen, also calls for more information: "We have to be honest about the financial situation of the pension system. Currently, already one fifth of the annuities in the first pillar are coming from tax redistribution and not from social insurance contributions - and demographic developments are not helping."

Although the notion of a strong first pillar still prevails, Martha Oberndorfer of the Bundespensionkasse (BPK), which provides pensions for a part of public employees, feels a wind of change: "The federal chancellor knows about the importance of the second pillar and so does the younger generation."

But Mercer Austria points out in its latest journal that the tax and legal framework in Austria are still hindering the growth of the second pillar. In tune with a long-standing demand from the pension funds, it wants to see changes to the taxation of employees' contributions to Pensionskassen. For several years now the Pensionskassen have demanded the introduction of the EET model to make employees' contributions tax free in the pay-in phase.

One of Mercer's demands has been marked for action. As Gusenbauer pointed out in a speech, in which he said the Swiss pension system was a model for Austria, profit sharing models as part of employees' salaries are to be increased and bonuses are to be put into a Pensionskasse.

Ziegelbecker explains the economic advantages of this model: "If employees' bonuses and other profit sharing models go into a pension fund rather than being paid out, it would not matter so much if the bonus was lower in one year and higher in the next as long as a continued pension contribution is guaranteed. Cash payments raise the salary expectancy and, if a bonus is lower in one year, employees might take that as a sign of an economic downturn and spend less, which in turn would weaken the economic cycle. Excess spending could also be prevented with this model."

He also mentions the possibility of putting pension fund arrangements for industries into the collective bargaining agreements - on a voluntary basis. "This would help SMEs to set up a Pensionskassen and in turn it would attract more people to these companies." Other pension funds and consultants also pointed out that offering a second pillar pension provision is becoming more of a necessity for companies who want to hold or recruit qualified employees.

However, to strengthen the credibility and improve the image of Pensionskassen, Mercer says that the tricky issue of high discount rates has to be addressed. Under some old contracts it is as high as 6.5%. "This figure will not be reached in the next few years. Pensionskassen will have to explain to employees that a cut to about 5.5% is necessary but that it is only a reduction on paper. If the issue is not addressed now, Pensionskassen will never get rid of the image [mainly painted by the media] that they are cutting pensions," Michaela Plank from Mercer says.

Even if all these measures were realised, the growing number of the self-employed, especially in the media and in IT, will mean that about every second person who is now under 30 cannot benefit from an occupational pension fund because they have no access to a Pensionskasse. "These people do not have a representation within the unions and most people in the labour chamber cannot relate to the problem as they are mostly over 50 and employed," Timmel explains. "In the autumn we will start a media campaign together with the other Pensionskassen."

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