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Austrian pension association proposes new long-term savings vehicle

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The Austrian pension fund federation (FVPK) has proposed a new long-term savings account for payments related to overtime and unused holiday, as it pushes to expand pension coverage through inclusion in a greater number of collective bargaining agreements.

Andreas Zakostelsky, the federation’s chairman, backed the introduction of a new type of savings vehicle, a flexible benefit long-term account to be managed “by a professional third party”.

According to the chairman, the FVPK wishes to hold talks with social partners about creating the new account structure. Zakostelsky proposed its income would be drawn from overtime pay, bonuses or the cash equivalent of unused leave.

He added that the assets could then be invested and later used for sabbaticals, personal care or supplementary retirement.

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“This is just an idea we want to present, and we think it will start an interesting discussion – all of it has to be voluntary of course,” said Zakostelsky.  

Eventually, such a model would require changes to Austrian social and labour legislation, as well as supervisory guidelines.

Zakostelsky also said FVPK was in talks with social partners to convince them to include pension fund arrangements in their new collective barganing agreements, most of which are up for negotiation this autumn.

Currently 69 out of the 859 collective bargaining agreements setting remuneration standards for various sectors signpost the use of Pensionskassen as way for companies to provide retirement benefits.

Zakostelsky said he was convinced collective bargaining agreements would provide the leverage to achieve the FVPK’s goal of doubling the number of Austrians saving into a Pensionskasse.

Currently around 23% of all Austrian workers and employees are accruing assets in a Pensionskasse or are already drawing down their supplementary occupational pension.

The chairman also took issue with the European Central Bank’s (ECB) current monetary policy, saying it was “questionable” to keep up a low interest rate policy over such a long period to “desperately try and keep the price of a commodity at zero”.

“The EU’s low interest rate policy is borderline irresponsible and relatively absurd as we do not really see the effects we hoped for, like kickstarting the economy.”

In an unusually critical statement, he also said the ECB’s measures led to “systematic redistribution - not to say expropriation” and were “keeping the middle-income segments from increasing their assets via compound interest effects or indeed any interest rate effects”.

The German association of company pension funds previously expressed similar criticism in 2014 and two months ago a representative of the Austrian insurance industry said pension providers were regarded as “collateral damage” of the ECB’s policy

However, Zakostelsky stressed institutional investors such as Pensionskassen were still able to generate some return in the current environment if employing the right risk management.

For the first half of 2016, Austrian Pensionskassen only managed an average performance of 0.22%.

However, Zakostelsky pointed out over the last three years of low-interest rates the annualised average return stood at 4.14%, and 5.93% over the last five years.

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