The severance system is better known as the “Abfertigung neu” (new severance scheme). This section contains information about the issue of the legal bases, how the severance system works, the Austrian Financial Market Authority’s legal mandate, the most important figures and about information requirements.
What are corporate provision companies?
The Austrian Financial Market Authority (FMA) supervises corporate provision companies. A corporate provision company is an undertaking that is authorised to conduct corporate provision company business under the Austrian Banking Act (BWG; Bankwesengesetz). It consists of the acceptance and investment of severance contributions from salaried employees and self-employed persons. The corporate provision company holds and manages such contributions as a trustee for the entitled beneficiaries. This activity requires a separate licence in accordance with the Banking Act (BWG; Bankwesengesetz).
The severance system has existed in its current form since 1 July 2002, when it replaced the previous severance scheme, hence why it is also known as “Abfertigung neu“.
Activities of corporate provision companies
Conducting of corporate provision company business is defined in the Company Employee and Self-Employment Provisions Act (BMSVG; Betriebliches Mitarbeiter- und Selbständigenvorsorgegesetz). The acceptance and investment of severance contributions in the BMSVG is defined as a banking transaction under Article 1 para. 1 no. 21 of the Austrian Banking Act (BWG; Bankwesengesetz). Consequently, corporate provision companies are also subject to the provisions of the BWG, with some exceptions, in addition to those of the BMSVG. Material specific provisions are the mandatory appointment of state commissioners and their deputies, as well as a supervisory board, irrespective of their total assets as well as separate own funds rules.
If a licence is granted, such undertakings are only permitted to conduct corporate provision company business. Participating interests in other undertakings are not permissible, except for in such undertakings the conduct activities that are related to corporate provision company business. The framework conditions related to investment policies and own funds requirements applicable to corporate provision companies are regulated by law and are subject to supervision by the FMA.
Its scope generally extends to all employment relationships under private law, therefore in particular those of salaried employees and workers. A similar provision model came in for independent contractors and self-employed persons on 1 January 2008. As a rule, the employer selects the corporate provision company and concludes a contract for joining the selected corporate provision company.
Further information about statistics can be found in the FMA’s Annual Reports.
How does the system work?
Corporate provision companies hold a licence pursuant to Article 1 para. 1 no. 21 BWG for accepting and investing severance contributions and self-employed provision contributions (“Abfertigung neu”). The employer concludes a contract to join a corporate provision company for all employees from the beginning of their employment relationship and pays a contribution of 1.53 % of monthly salaries and any special payments to the employee’s competent health insurance carrier to be passed on to the corporate provision company.
In contrast, under provisions for the self-employed, self-employed persons conclude their contract with corporate provision companies themselves. For specific groups of jobs (e.g. attorney, notaries, civil engineers, as well as farmers and foresters) there is a voluntary possibility to conclude such a provision for self-employed.
Investment rules and the right to severance
The corporate provision company is authorised to received and invest these contributions and must conduct its corporate provision company business in the interest of the entitled beneficiaries, and in doing so to pay particular consideration to security, profitability and requirements for liquid funds as well as appropriate blend and diversification of assets. It should be noted that a capital guarantee is legally required to exist for the contributions paid to the corporate provision company (Article 24 BMSVG).
Investment conditions that have been approved by the FMA in advance must exist for the investment group managed by the occupational severance and retirement fund. They define the legal relationship of the entitled beneficiaries to the corporate provision company as well as the custodian bank and therefore are required to include the principles under which investment instruments were selected.
Where the qualifying conditions are met under Article 14 BMSVG, then, for example, a pay-out for the entitled severance amount, to continue to invest it, or to transfer the entire severance amount to the corporate provision company of a new employer (Article 17 BMSVG).
Information obligations
Article 25 para. 2 BMSVG states that the entitled beneficiary is required to be informed annually in writing within three months about the the state of their severance fund as of 31 December of the previous financial year, about
- the severance payment entitlement attained as of the last balance sheet date,
- the contributions made in the financial year by the employer,
- the cash expenses and management costs to be borne by the entitled beneficiaries,
- the allocated investment performance, as well as
- the total acquired severance entitlement.
In addition to the entitled beneficiary’s name and social insurance number, the key informations required to be stated in the annual statement of account includes the information stated above. In addition, this information must also state the principles of the investment policy as well as the investments held as cut-off point for the financial statements. The entitled beneficiary will be informed by the corporate provision company about their disposal options when an employment relationship ends. The FMA has issued minimum standards about the format of this account information, which the FMA expects corporate provision companies to observe in line with Article 39 BWG.
The statements of accounts of the investment groups are required to be submitted to the employers making contributions and the competent works councils upon request.
Additional Links
Law
Act on Severance and Retirement Funds for Salaried Employees and Self-Employed Persons (BMSVG; Betriebliches Mitarbeiter- und Selbständigenvorsorgegesetz) available in German only
Austrian Banking Act (BWG; Bankwesengesetz)