Austrian chancellor Christian Stocker has proposed building a sovereign wealth fund with €100bn in capital over the coming decades to support first-pillar pensions.
In an interview last week, Stocker raised the possibility of allocating “continuously, year after year” €700m to the fund, which would invest in capital markets.
The annual contribution would come from roughly half of the profits and dividends generated by state-owned companies, according to Stocker.
Once the fund reaches €100bn, around €5bn would be distributed annually to support the pension system.
Stocker described the fund as a new instrument with a “structural effect” on the pension system, based on the capital-funded pension model used in Nordic countries such as Denmark.
“Denmark has shown that in the long term it is possible to build up assets steadily,” he added in the interview.
Mixed reactions
The proposal has drawn mixed reactions from political parties and experts.
The Social Democratic Party (SPÖ) said that profits from state-owned companies already flow into the budget to help finance pensions.
“If dividends from equity holdings are used for other purposes, those funds will be missing from the budget,” the SPÖ pointed out.
Johannes Gasser, a member of parliament (MP) for liberal party NEOS, said reinforcing the capital-funded component of the pension system was a “good idea” to stabilise the system in the long term.
However, a sovereign wealth fund alone would not solve the pension system’s core problems or replace important and overdue reforms needed to ensure its financing, he added.
Think tank Agenda Austria described the plan to use half of the dividends from state-owned companies to support the pension system as “highly unrealistic”.
The think tank modelled a scenario over the next 30 years in which €788m was injected into the fund annually, with returns of 6.9% – matching the average long-term return of Norway’s sovereign wealth fund.
Under these assumptions, the fund would accumulate a substantial amount of assets by 2056.
However, the returns would cover Austria’s pension funding gap, currently amounting to more than €30bn a year, for only a very short period, according to the think tank.
