VBV, APK produce top returns in Austria's life cycle investment system

Austrian multi-employer Pensionskassen returned 6.34% on average for 2017, with a wide margin between the best and the worst, according to Mercer.

Overall, the multi-employer Pensionskassen well outperformed the few remaining company pension funds in the system, which only delivered 4.07%. This brought the overall average in the second pillar to 6.13%, as previously reported. 

Mercer Austria’s annual detailed analysis of pension fund results was based on individual providers and different risk categories offered as part of the life cycle model.

“The important thing last year was an active asset allocation as well as a constant surveillance of and reaction to the capital markets,” noted Michaela Plank, occupational pension expert at Mercer Austria.

She added: “Focusing on emerging markets and alternative investments also helped boost performance.”

VBV came first in the categories with the lowest equity share (under 16% allocated to equity) as well as the highest (over 40%), returning 4.61% and 8.79% respectively.

APK topped the two medium-risk categories with its conservative fund gaining 6.94% and balanced fund up 7.1%.

Valida produced the best return in the “active” category, for funds with an equity share between 32% and 40%.

Mercer’s Plank also mentioned a “significant difference” between the best and worst returns in each category. She cited a 462 basis points difference between the best and worst performers in the “active” category.

Valida was also the best performer among the eight providers of Vorsorgekassen – mandatory provident funds managing severance pay money.

It returned 3% compared to the market average of 2.15%.

Vorsorgekassen are restricted in their risk-taking as they have to guarantee the capital for payout at almost all times.

Pensionskassen ‘should be more flexible’

In its press release Mercer also called on the government to amend the legal framework governing Pensionskassen to render it more flexible.

The consultancy would like to see fewer restrictions on asset allocations, such as the current 30% cap on foreign exchange exposure.

Additionally, it proposed making money from pension funds available in certain circumstances, for example when needed for medical care.

Thirdly, Mercer noted the Rechnungszins – the rate used to calculate contributions and pension payouts – should only be set when an individual gets closer to retirement, not at the start of employment.

“During the saving phase it only leads to expectations on future pension payouts but is not relevant until retirement,” Mercer explained.

Regardless of whether or not these proposals are taken up by the government, the Austrian Pensionskassengesetz rulebook will have to be amended this year to implement the IORP II directive.