A boost to the second pillar’s defined contribution (DC) occupational pension plans is essential to strengthen Austria’s pension system, as the first pillar is under pressure from increased life expectancy and low birth rate, said Michaela Plank, managing director of Mercer Austria.
“The need for additional, [defined] contribution-oriented and sustainably financed pension plans, such as those offered by company pension schemes, is increasing. But this also requires appropriate tax incentives and more flexibility in the existing [pension] models” she added, commenting on the results of the 2024 Mercer CFA Institute Global Pension Index.
The pay-as-you-go state pension system has come under increasing pressure also because of rising costs attached to the country’s overall social security system, Plank said.
According to Mercer’s index, Austria’s retirement system consists mostly of defined benefit (DB) public pension plans, and voluntary private pension plans. The country’s pension system score has improved only marginally year-on-year to 53.4 in 2024, from 52.5 in 2023, according to Mercer’s pension ranking.
The country still ranked 23rd place in the “adequacy” sub-category, measuring whether retirement income is adequate, a position already held last year.
In the “sustainability” sub-category, which assesses the long-term financial sustainability of retirement systems, Austria ranked a “worrying” 48th position, therefore last place, Mercer said.
The situation has not improved in the “integrity” category – which focused on capital-funded schemes, considered regulations and governance, and assessed whether a system can be trusted — Austria ranked 29th this year, up only two positions from its 27th place in 2023.
Austria could try to climb the index by introducing a minimum age to access retirement plans and expanding coverage of employees in occupational pension schemes, thus increasing the level of contributions and assets – which could be done by collective bargaining agreements or tax-effective regulation.
Harald Holzer, president of CFA Austria, added: “Austria continues to struggle with difficult age trends in the pay-as-you-go system. This makes it more difficult to finance our pension system. One way to counteract this unfavourable situation is to expand and increase the benefits [provided] by company and private pension schemes.”
The public is showing an increasing interest in investing in such products, he said, adding: “This [interest] should be further encouraged through smarter incentives.”
Proposals to change the pension system by various Austrian political parties in the last general election campaign touched on tax cuts, equity pensions for stronger returns on capital markets, and early retirement.
The latest digital edition of IPE’s magazine is now available
No comments yet