Tax cuts, equity pensions for stronger returns on capital markets, and early retirement are the proposals on the table to design Austria’s pension policies for the country’s next government, following the remarkable victory of the right-wing populist party FPÖ in the general elections held last Sunday.
FPÖ, Freiheitliche Partei Österreichs (Freedom Party of Austria), has proposed in its electoral programme tax advantages for employees working beyond the statutory retirement age to fight the current shortage of skilled workers.
The right-wing party backs what it calls a tax pension bonus, an exemption from social security contributions and a reduction of contributions paid by employers.
It supports tax exemption for employers taking measures to secure stability in old age for employees, reducing taxes to transfer contributions for life insurance and Pensionskassen, and introducing a tax-free retirement savings account (Vorsorgedepots) for retirement provisions, it added.
The Austrian People’s Party (Österreichische Volkspartei, ÖVP), which came second with 26.5% of the votes, also proposed in its electoral programme to cut taxes on new retirement savings accounts after a retention period, to boost capital market investment through savings, and cut taxes for pension fund contributions from 2.5% to 1.5%.
Parents should invest in securities via exchange-traded fund (ETF) savings plans on behalf of their children, according to ÖVP.
The party has also suggested setting up a fund for start-up investments, and creating conditions to strengthen fund of funds structures for institutional investors to avoid capital flowing to the US, and further develop SICAV fund structures, it added.
The social democrats party SPÖ, which came third with 21.1% of the votes, is for a public pension system organised on a pay-as-you-go basis, with people who should be able to work and stay healthy until retirement age.
It has promised not to cut statutory pensions and not to increase the statutory retirement age, making it easier to retire earlier for workers with strenuous jobs, it said.
The social democrats are in favour of early retirement at 60 without cuts to pensions, after 45 years of work, which can include up to 60 months for raising children as well as periods of military and community services.
The liberal party NEOS has pitched to the public before the election an equity pension (Aktienpension) in the third pillar pension system for all employees, with up to €3,000 per year that can be invested tax-free in an account (Chancendepot).
The party, which came fourth in the election results with 9% of the votes, wants to open company pension schemes for everyone, introducing an equity pension for all employees.
NEOS wants to reform the severance pay (Abfertigung Neu) model to let employees choose their provident fund, with a higher allocation to equity investments at the beginning of their working life, that gradually decreases until payout.
Under the severance pay model currently in place, the employer pays, from the second month of employment, 1.53% of the gross monthly salary to the Austrian Health Insurance Fund (ÖGK), which forwards the amount to a provident fund.
The Greens, which disappointed with only 8% of the votes, will engage to exclude coal, oil and gas from the list of potential investments through pension savings, to introduce a “green basic pension” financed through taxes for everyone aged 65 and over, to protect people from poverty in old age, and for an additional pension based on contributions paid during working life, and support pensions for women with strenuous jobs.
Reforming it all
Andreas Zakostelsky, chair of the Fachverband der Pensions- und Vorsorgekassen, the association established to represent the interests of pension and provident funds, told IPE that the country needs a reform of all three pillar pension systems.
“A reform of the pension system and a rapid expansion of company pension schemes is essential for the economy […] and for our equality among generations,” he added.
The Austrian Vorsorgeverband, the association of Pensionskassen and Vorsorgekassen (provident funds), told IPE it “wants to create a professional basis for discussion with all parties that will take part in a future government”.
Prior to the election, the Vorsorgeverband had prepared a paper for any new government outlining key reform steps – all of them had been on the government’s agenda for the last decade at least and only a few of them were ever discussed.
A spokesperson for the Vorsorgeverband told IPE it wants to leave the design details of any new system to the so-called ‘Alterssicherungskommission’, a body consisting of civil servants, academics and experts to advise the government on the retirement system.
For any of its reform suggestions, which mainly consist of changes to the tax system as well as a call for more choice in the asset allocation for pensioners, the Vorsorgeverband will need strong support in parliament.
“A stable reform would have to be supported by a large majority of the parties in parliament – similar to what happened in Sweden years ago,” the Vorsorgeverband told IPE in a statement. “This way the reform would be powerful and have the necessary backing from the voters.”
Gerald Moritz, managing director of Moritz Consulting, agreed on the need to put the Austrian statutory pension system on a sustainable footing in the interests of the young generation, and in light of demographic changes, state’s support required, and a lack of trust among young people in state pensions.
“There is therefore an urgent need for an open discussion about any necessary changes, regardless of short-term political issues. The aim must be to make the [pension] system predictable and secure for future generations, without putting strain on the state’s financial situation,” he said.
Moritz added that strengthening the second pillar to avoid poverty in old age and support people’s purchasing power, which in turn has a positive impact on the economy.
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