Returns for Austrian Pensionskassen have shown an uptick in Q3 of 2020 during one of the most challenging years, according to research conducted by Mercer.
The multi-employer, or überbetrieblichen Pensionskassen, recorded a 1.79% return in Q3, but the overall underlying performance for 2020 remained negative at -2.84% at the end of September.
Mercer Austria analysed the performance of Pensionskassen in different categories based on equity exposure. According to the consultancy, Allianz Pensionskasse fared relatively well in difficult market conditions in particular in the conservative (-1.13%) and balanced (-1.42%) investment options.
The VBV Pensionskasse took the lead in the defensive (-0.19%) and active (-2.55%) investment categories, while APK topped the ranking in the dynamic category (-1.80%).
Michael Plank, managing director at Mercer Austria, said financial market risks would “remain high for the rest of the year,” adding that Pensionskassen should establish a functioning risk management system and diversify portfolios to fend off further potential turmoil.
Vorsorgekassen, funds that manage severance pay contributions, showed signs of recovery from the downturn in March with an average return of -1.1% recorded at the end of September, Mercer said.
However, returns varied among individual funds in the range of -0.50% to 2.08%, these having equity allcations of more than 40%, research showed. The Bonus Vorsorgekasse lead the ranking with -0.50%, followed by the VBV-Vorsorgekasse with -0.52%.
The capital guarantee that Vorsorgekassen have to provide is a double edged sword, Mercer said. It is a tool to buffer fluctuations in the short term, but in the long term slows down returns due to the risk-averse investments, it added.
Push for reforms
Mercer favours a Vorsorgekassen reform that would extend the period to keep money in such investment options from the current three years to 10 years, and at the same time expand investment caps and introduce the option to waive a capital guarantee.
The firm noted that guarantee costs are not high for small contributions, but combined with administration costs for fixed contributions of each pension fund the amount left for investment is limited.
This has a negative impact on allocations in capital markets that would contribute to boosting the funds’ performance, also depressing returns, it added.
Mercer has recommended a series of measures to change the Austrian pension system.
The Austrian government should reinforce the second and third pillars to secure the long-term stability of the pension system, and build a legal basis for deferred compensation by integrating it into collective agreements for pension provisions.
Moreover, the government, according to Mercer, should significantly increase the amount that an employer can invest in pension solutions, based on the so-called Zukunftsicherung model, from the current €300 per year to €1,000 in order to guarantee a basic pension.
Overall, the government should review the role of the Pensionskassen and the Vorsorgekassen within the occupational pension schemes’ framework.
“We want to emphasize once again the recommendation to create tax incentives for personal contributions,” said Plank.