The pension company system is one form of company old-age provision in Austria. The basic features of Pensionskassen, including how they function in general and their activities as well as the related responsibilities of the Financial Market Authority, are presented below.
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The Austrian pension system rests on the three pillars of:
- company and
- private old-age provision
Pensionskassen are a form of company old-age provision.
Employers pledge to regularly make voluntary contributions to the old-age provision fund of their employees. Employees can additionally make voluntary contributions to the fund. These contributions are managed by the Pensionskassen.
Pensionskassen are classified as either single-employer or multi-employer. Single-employer Pensionskassen are active on behalf of one employer. Multi-employer Pensionskassen are entitled to carry out pension company activities for more than one employer.
Establishment and management of investment and risk sharing groups
Pensionskassen invest the contributions paid into the fund. To do this, these contributions are pooled in what is referred to as “investment and risk sharing groups” (IRGs), each comprising at least 1 000 individuals. This results in several advantages:
- Balancing of technical risks: Employees’ assets are invested jointly so as to balance any risks (longevity risk, mortality risk, risk of occupational disability). Longevity risk refers to the risk of a person living longer than expected. When the mortality risk is covered, insurance for the event of mortality is provided. Coverage of disability risks can also fall within the scope of the activities pursued by Pensionskassen.
- Joint investment: The Pensionskasse usually follows a separate investment strategy for each IRG . In this strategy, Pensionskassen are obliged to consider the factors of security, profitability and the availability of the funds contributed. Risk diversification can be achieved more cost effectively due to the greater investment volume of the contributions. Risk management ensures that risks will be appropriately addressed.
- The assets belonging to an IRG represent special funds. Such assets are protected in the event that the Pensionskasse files for bankruptcy, which means that beneficiaries’ claims are not forfeited.
Benefits paid out by Pensionskassen
Pension benefits are paid out by Pensionskassen in the form of:
- old-age pensions,
- survivors’ pensions and
- invalidity pensions
Old-age pensions are paid for life. Survivors’ pensions are paid out according to the terms stipulated in the agreement. Invalidity pensions are paid out for the duration of invalidity (where correspondingly stipulated in the agreement).
Pension company commitments can be based on defined contributions or defined benefits or combinations of the two.
- Defined benefit commitments: The amount of the pension benefits is defined. The contributions paid by the employer vary depending on the investment result. The employer bears the investment risk and the technical risk.
- Defined contribution commitments: The amount of the employer’s contributions is defined. The employees bear the investment risk and the technical risk.
For providing their services, Pensionskassen receive remuneration at a level that is appropriate and customary for the market.
The Financial Market Authority supervises the Pensionskassen. The FMA performs the official tasks and uses the powers specified in Article 2 para. 4 of the Financial Market Authority Act (FMABG; Finanzmarktaufsichtsbehördengesetz). The tasks of the FMA include granting licences for pension company activities and monitoring ongoing business operations.
The FMA monitors Pensionskassen to ensure compliance with the provisions of the Pensionskassen Act (PKG; Pensionskassengesetz). When carrying out the tasks assigned to it, the FMA is obliged to consider the interests of the Austrian economy in a functioning pension company system as well as the interests of persons entitled to receive benefits from a Pensionskasse in future or already receiving such benefits.
Licensing of Pensionskassen
Austrian Pensionskassen are entitled to carry out activities only under a licence granted by the FMA. For the licence to be granted, certain requirements must be met, such as:
- sufficient equity capital;
- business plan meeting approval;
- suitability of management board members and shareholders;
- legal form of a joint stock company (AG)
Institutions for occupational retirement provision that are licensed in a Member State of the European Economic Area are also entitled to pursue pension company activities in Austria. In such cases, the supervisory authority of the home Member State is responsible for the supervision of activities carried out in Austria.
Monitoring ongoing business operations
The most important supervisory activities of the FMA include:
- ongoing analysis of developments in the pension company market and of individual Pensionskassen and IRGs ; and
- review of compliance with rules regarding:
– the investment limits defined in the PKG,
– the cover of technical provisions, and
– the own funds requirements.
For assessing these objectives, investment data, provided on a quarterly basis, are available in addition to the audited financial statements of the Pensionskassen, the audited reports on activities of the IRGs . and the relevant audit reports by the statutory auditors, which are available each year.
The FMA additionally conducts management talks, company visits, brief inspections and on-site inspections.