Just over one million of the non-self employed working population (exactly 1,053,021 as of 30 June 2023) are enrolled in the Austrian Pensionskassen (pension companies) system. As of that date, Austria’s eight Pensionskassen (PKs) managed assets of € 25.4 billion for them. Approximately 13% of them already receive an additional pension from this form of occupational retirement provision, with the remaining 87% still currently in the accumulation phase. As a result, roughly one quarter (23%) of all employed persons in Austria already have an entitlement to such a pension. Since Pensionskassen have a long-term investment horizon and continue to have a low, and above all predictable liquidity requirement, they are able to pursue a higher risk-and-return profile, with a volatile investment performance as a consequence. The investment risk in the past ten years has fluctuated between +11.6% (2019) and -9.7% (2022); it stood at +3.28% during H1 2023. These figures emerged from the FMA’s report “The State of the Pensionskassen 2023” which published today.
Volatile investment strategy
While on average 46% of the funds under management in the European Economic Area in occupational retirement provision are invested in funds, at Austrian Pensionskassen the figure is more than 96%, and this predominantly in Austrian funds. As at the end of the first half of the year, 36% were held in shares, 37% in bonds, and 11% in real estate. The rest were in held in assets like private equity, derivatives, loans and credits, or cash at banks. In 2012, the proportion of bonds was 58%, while those in shares was only 24%. In contrast to European pension funds and insurance undertakings, Austria’s Pensionskassen do not however have a preference for national issuers, neither in relation to shares (less than 2% of total assets), nor in relation to government bonds (less than 4%) or corporate bonds (less than 5%). In the case of shares, US stocks denominate with a share of approx. 37%, while European issuances have a share of 50% of government bonds, while 23% of corporate bonds are from US issuers.
In 81% (measured in terms of premium reserve) of Pensionskassen commitments, the minimum yield guarantee stipulated under law is waived by means of “opting out”. Their legal construction also does not ensure a capital guarantee, but instead merely ensures increased performance for a year. Since 2015, their annual target has been negative reaching up to -0.7% due to the low interest environment.
The number of defined benefit Pensionskassen commitments continues to fall
Around one-fifth (18%) of the Pensionskasse contracts concluded by employees grant defined benefit commitments. This means that the employer has determined in advance, what pension amount (either as a fixed amount in Euro or as a percentage of final salary) is to be paid out and is obliged to make the corresponding payments. In contrast, 82% of the assets under management (or in isolated cases in hybrid solutions) are for defined contribution commitments, for which the employer only commits to a fixed payment amount (as a rule a certain percentage of the current salary, with the actual pension amount then depending on the investment performance that is achieved. While 18% of premium reserves in the PK system are for performance-related commitments, such a commitment exists for only 2% of beneficiaries (entitled and recipients). The proportion of performance-related commitments has been falling strongly for a number of years.
Climate Stress Test
Pensionskassen also have a material role as large institutional investors in the battle against climate change. Currently the proportion of assets in their portfolio that are a threat to the climate still stands at 28%, usually from the fossil fuels and real estate sectors. In a top-down climate stress test simulating an abrupt and strong rise in CO2 prices, the FMA calculated that this factor alone would reduce the value of the portfolio as a whole by around 7.5%. Pensionskassen therefore face large challenges in this way.
Pension gap for woman also exists in company old-age provision
While 46% of beneficiaries (entitled and recipients) are women, they only represent 27% of assets under management. The average premium reserve for men, of € 31,467, is more than twice as high as for women (€ 13,627). This reflects the income gap between men and women, as well as the latter’s greater proportion in part-time employment and on leaves of absence.
The full report can be found on the FMA website (in German only) at https://www.fma.gv.at/pensionskassen/offenlegung/lage-der-oesterreichischen-pensionskassen/
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