Creating a tax exemption for individuals’ pension contributions would also benefit Austria’s economy, an academic study has found.

The study was commissioned by the Austrian pension fund association VFPK on the effects of the so-called EET (‘exempt, exempt, taxed’) tax model that the lobby group has been promoting for years.

Under current Austrian legislation, contributions made to pension funds by employers are tax exempt and tax only has to be paid when the accrued sum is paid out as a pension. However, employees can only make additional contributions from their taxed income.

“Applying the EET model both to employer and employee contributions would be a tax harmonisation and also benefit both the individuals and the Austrian economy,” Andreas Zakostelsky, chairman of the VFPK, said at the presentation of the study earlier this week in Vienna.

Researchers from the Institute of Advanced Studies found the additional value creation for the Austrian economy could be up to €1.7bn over a 10-year period.

According to the researchers, this effect would be mainly as a result of pensioners having higher disposable income during retirement.

Currently, of the roughly 23% of Austrian employees that are covered by a Pensionskasse, only 3% make additional contributions to top up payments from their employer.

The model was also fully supported by the president of the Austrian national bank, Claus Raidl. He said: “It is not a call for more subsidies; tax payment is simply deferred to a later point in time.”

He confirmed that he and Zakostelsky would use their “extensive political contacts” to introduce the topic during the current coalition negotiations between the conservative People’s Party (ÖVP) and the right-wing Freedom Party (FPÖ).

Raidl said: “I want to help render the second pillar more attractive and Pensionskassen provide very good returns.”

The most recent data compiled by Mercer Austria showed the five multi-employer funds in the market generated 4.5% on average for the first three quarters of this year. However, the range of returns ranged over 5% to just over 2% in the medium-risk portfolios alone.

In the Melbourne Mercer Global Pensions Index, released earlier this month, author David Knox recommended that Austria attempt to increase pension coverage through “collective bargaining agreements or tax-effective regulation”.

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