AUSTRIA - VBV, the largest Pensionskassen in the Austrian pensions market, has called for greater flexibility in the rate at which pensions are calculated, in a bid to minimise the number of cases where payouts are being cut.
Under the Austrian Pensionskassen system, pension payouts can be cut when the returns are lower than the calculation rate negotiated for the pension contract.
On some older contracts this rate - known as the "Rechnungszins" - can be up to 6.5% but for new members the rate is capped at 3.5%, meaning pensioners with the older contracts will face considerable cuts in their benefits this year, according to VBV.
"We have a problem in the system as the calculation rate is negotiated by the company and union representatives when a retirement contract is set up," said Günther Schiendl, chief investment officer of VBV, at a conference in Vienna.
"The rate is then legally fixed for the next 60 years over which time the employee is accumulating money and then receives a pension on retirement. But we need more flexibility in the system so people themselves choose the calculation rate at retirement.
Schiendl noted members could then decide individually whether they want a higher supplementary pension to begin with, by choosing a high calculation rate, or a steady pension over several years.
He added the current regulations create an "asset liability mismatch" because they demand a fixed calculation rate be applied over the whole period of a pension contract but force the Pensionskassen to value assets on a mark-to-market principle.
Union representatives attending the conference demanded the reintroduction of minimum return guarantees for Pensionskassen, which were abolished in 2003 in the wake of the bursting of the dotcom bubble.
Some funds have been offering guarantees since then but they come with costs for the beneficiaries.
"The minimum return guarantees have to be reintroduced retrospectively to at least cushion some of the damage [of the markets]," claimed union representative Dwora Stein.
A guarantee on pensions is currently offered by the so-called collective occupational insurances ("Betriebliche Kollektivversicherung") - an insurance-based second pillar vehicle.
However, Schiendl stressed those providers offered initial pensions which are a third or one-quarter lower in value than those offered by Pensionskassen.
"People have to choose between a lower stable pension or possible higher pension payments," Schiendl added.
He announced the VBV will be offering a stable pension option from next year, adding he is currently working on the new offering.
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