Austria’s proposed second pillar reform could unlock a €17.7bn transfer market by allowing broader movement of severance pay assets from provident funds into pension funds.
Under the reform, all employees would be able to transfer entitlements held in provident funds (Vorsorgekassen) into pension funds via a statutory occupational pension product based on a general pension fund contract (Generalpensionskassenvertrag).
Currently, only around 25% of employees can transfer such assets at retirement.
“Potentially, 75% of the [total €23.6bn] assets now in provident funds could be transferred to Pensionskassen, but it remains to be seen how many members will choose to transfer the assets, and how many will decide for the payout of the severance payments,” said Gerald Moritz, managing director at Moritz Consulting.
He added that transfers would support the build-up of more adequate pension savings. “The reform is a first step in the right direction, and I expect that further steps will follow,” Moritz said.
Michaela Plank, managing director at Mercer Austria, said extending the general pension fund agreement to active members, rather than only those at retirement, removes a key structural barrier.
“It eliminates a key barrier to entry, and this, in the medium term, can make a significant contribution to the broader integration of pension funds into the occupational pension system,” she added.
However, take-up remains uncertain. A majority of individuals currently opt for lump-sum payouts at retirement.
“It remains to be seen to what extent the full market liberalisation upon retirement will lead to an increase in transfers to the Pensionskassen,” Plank said.
Shift to higher-risk investment options
The reform also introduces new investment flexibility. Provident funds would establish a dedicated pension investment pool (Vorsorge-Veranlagungsgemeinschaft) alongside existing severance pay pools, allowing long-term investment without capital guarantees.
Members would be able to opt into the new pool and switch investment strategies via an opt-in model.
“The new option is clearly a game-changer for the Austrian pension market. Members can decide to invest their savings at the time of retirement based on a long-term investment approach, and without guarantee, to achieve a better performance,” Moritz said.
Plank noted that existing capital guarantees and short investment horizons have constrained returns and limited flexibility.
“With the introduction of the supplementary pension scheme, it is now possible to individually influence the investment strategy by switching to the alternative investment pool,” she added.
The reform also reduces the cap on asset management fees for provident funds to 0.6% of invested severance pay assets per year, down from 0.8%, aiming to improve cost efficiency and enhance the relative appeal of pension funds.
