Austria’s Pensionskassen, a form of company old-age provision which managed around EUR 27 billion of fund assets at the end of 2021, an amount which had fallen to EUR 24.6 billion in mid-2022, pursue a dynamic investment strategy with a risk/reward profile in line with their long-term investment horizon, targeted returns on investment and their relatively low liquidity needs. This means that their investment performance is relatively volatile during periods of economic growth and slowdown, a fact demonstrably reflected in their recent performance. For 2021 as a whole, the Pensionskassen saw an investment performance of +7.63%, falling to -8.78% in the first half of 2022 due to losses on the financial markets caused by Russia’s military attack on neighbouring Ukraine and the ensuing repercussions for the global economy. This is the essence of the FMA’s report, published today, on the state of Austrian Pensionskassen in 2022. As of 30 June 2022, over a million people are covered by this voluntary company old-age pension system, equivalent to around a quarter (23%) of all jobholders. 13% of beneficiaries are already in receipt of an additional pension, while 87% are still in the saving phase.
Volatile return, volatile company pension
As an old-age pension product with sufficient capital to cover provisions, the amount of the company pension to be paid out generally depends on fluctuating rates on the financial markets, as – measured against the managed assets – a mere 18% comes from defined benefit commitments. In such cases, the employer commits to paying as much into the Pensionskasse as is needed for a previously promised pension to actually be paid out. However, around one in every two defined benefit commitments does not have a clause agreed between the employer and the Pensionskasse to protect against inflation, meaning that, given the current inflationary environment, defined benefit commitments are seeing their value decline in terms of purchasing power. In contrast, 82% of pension commitments were defined contribution or hybrid in nature, which means that the employer commits to paying in a defined amount (normally a percentage of the individual’s salary). The pension amount equals contributions paid in plus any returns generated.
Challenging economic environment
The investment climate is a particularly challenging one for Pensionskassen at present. The turnaround in interest rates following the lengthy period of loose monetary policy, the high rate of inflation, the substantially darker economic outlook (with a near global reach) as a result of the economic impact of the conflict between Russia and Ukraine, shortages in energy, commodities and materials, as well as strained supply chains have triggered price collapses in several asset markets and caused a significant increase in volatility as a whole. While rising interest rates do increase the opportunities for higher returns in new investments, they also erode the market value of existing low-interest bonds.
Dynamic investment strategy
Following an analysis across all funds, the Pensionskassen significantly reduced their level of investment in bonds in 2021 and focused to a greater extent on equities and shareholdings. The first half of 2022, however, saw a shift in the balance, with the share of equities and shareholdings in the total market decreasing from 40.6% as of 31 December 2021 to 37% as of 30 June 2022, while the decrease in the share of debt securities slowed down significantly. The bond share is currently 31.6%, compared with 32.9% at the end of the previous year. As was also the case during the low-interest phase, increases were seen in private equity funds (from 3.8% at the end of the previous year to 4% as of 30 June 2022), alternative investment funds (from 4.4% as of 31 December 2021 to 6.9% as of 30 June 2022) and the proportion invested in real estate, which grew from 5.9% to a high of 6.9%. There was also an increase in bank balances, which currently stand at 9.1% compared with 6.4% at the end of the previous year. Government bonds, the share of which has been on the rise again since 2022, still make up the largest share of bonds in total assets at almost 20%. There seems, however, to be virtually no favouritism shown towards Austrian government bonds here: the overweight among these securities amounts to just 0.5 percentage points, an extremely low level by EEA standards. The share of corporate bonds in the total amount has been in decline since 2021 and is currently at around 10%. Financial sector bonds have only a very minor (and declining) role to play in Pensionskassen investments, which is why the risk of entwinement here is lower than in the insurance sector. Derivatives, however, are an important component of the investment strategy, both for hedging risk (currency risk) and for managing portfolios efficiently (e.g. for equities).
The entire report (in German) can be found on the FMA’s website at https://www.fma.gv.at/pensionskassen/offenlegung/lage-der-oesterreichischen-pensionskassen/
Contact for press enquiries:
Klaus Grubelnik (FMA Media Relations Officer)
+43 / (0)1 / 24959-6006 or +43 / (0)676 / 88249516