AUSTRIA - Calculations of future pension costs in Austria's state system are up to 8% short, according to a former government advisor.

Earlier this year, a report was published on the sustainability of Austria's first pillar pensions based on demographic prognosis by the national bureau of statistics and economic forecasts.

But today, Karl Kreiter, an actuary and former pension advisor to a government commission, told journalists the report was based on figures which used "rather optimistic" prognosis regarding the fertility rate. And it used assumptions which "are not realistic" when it comes to future increases in salary.

He noted the future pension spending was based on an increase in contributions, which increase along with salary rises, of 1.7% above inflation annually.

However, historical data shows that while such an increase was still realistic in the late 1980s and early 1990s, wages since then have only grown by one percent above inflation or recently only 0.63% on average.

With regards to pension spending a lower wage increase by 0.7 percentage points means 9% more has to be put into the system by 2050 and 11% more including provisions for widows and invalids.

Furthermore, Kreiter noted the demographic statistics used by the government were based on average life expectancy of 65-year-olds since 1971 which is 24.4 years by 2050.

But when the time span is shortened to more recent years such as 1982 or 1991 this figure goes up to 25 years and 25.6 years respectively.

"Demographic prognosis over such a long time span can deliver no reliable results," said Kreiter, who had served on a pension reform commission appointed by the government a few years ago.

He explained these figures could only be indicators for mathematical if/then models.

On the other hand, however, the government used too pessimistic assumptions when it comes to migrant workers returning to their home countries as they included the year 2002 in which exceptionally many people left Austria, Kreiter noted.

Nevertheless, according to the actuary's calculations prognosis on pension spending should be upped by 8% in the prognosis for 2050 this year's pension report.

Asked whether he would suggest more frequent revisions of the figures used to calculate pension spending he told IPE: "It does not matter whether it is every three years (as it is done now, ed.) or every five years but it should be done correctly."

He hopes his figures will be used for future more intense stress testing of the system.

"I am absolutely in favour of a strong first pillar PAYGo system but we need realistic assumptions because there should not be any promises which cannot be kept," he concluded.

Similar doubts about the sustainability of the Austrian state pension system had been voiced in spring last year by the IMF. (see earlier IPE-story: Austria too optimistic on pensions - IMF)

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