IOPS COUNTRY PROFILE: AUSTRIA

IOPS COUNTRY PROFILE: AUSTRIA DEMOGRAPHICS AND MACROECONOMICS GDP per capita (USD) 40 300 Population (000s) 8 214 Labour force (000s) 3 630 Employment rate 95.4 Population over 65 (%) 18 Dependency ratio 1 12.7 Data from 2010 or latest available year. 1. Ratio of over 65-year-olds / labour force. Source: OECD, various sources. STRUCTURE OF THE PENSION SYSTEM AUSTRIA: COUNTRY PENSION DESIGN Source: OECD Global Pension Statistic January 2011 1

AUSTRIA: PENSION FUNDS DATA OVERVIEW 2001 2002 2003 2004 2005 2006 2007 2008 Assets Total investments (National currency millions) 6,337 8,343 9,339 10,370 11,726 12,743 13,150 12,546 Total investments, as a % of GDP 2.98 3.81 4.18 4.45 4.81 4.97 4.86 4.45 Of which Assets overseas, as a % of Total investment: Issued by entities located abroad ND ND ND ND ND ND ND ND Issued in foreign currencies ND ND ND ND 20.59 17.82 16.74 9.68 By financing vehicle (as a % of Total investments) Pension funds 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Book reserves ND ND ND ND ND ND ND ND Pension insurance contracts ND ND ND ND ND ND ND ND Other financing vehicule NA NA NA NA NA NA NA NA By pension plan type Occupational assets ND ND ND ND ND ND ND ND % of DB assets ND ND ND ND ND ND ND ND % of DC (protected and unprotected) assets ND ND ND ND ND ND ND ND Personal assets ND ND ND ND ND ND ND ND Structure of Assets (as a % of Total investments) Cash and Deposits 2.01 2.12 2.34 1.18 3.50 4.20 10.49 15.18 Fixed Income 78.48 80.02 74.33 72.33 54.03 51.56 45.66 50.34 Of which: Bills and Bonds issued by the public and private sector 78.02 79.50 73.64 71.55 53.23 50.80 44.44 48.99 Loans 0.46 0.52 0.68 0.77 0.79 0.75 1.22 1.35 Shares 16.29 14.28 16.50 19.36 36.97 36.07 35.12 21.20 Land and Buildings 0.50 0.46 0.71 1.05 1.32 2.13 2.00 2.15 Other Investments 2.71 3.12 6.13 6.09 4.19 6.05 6.73 11.13 Contributions and Benefits Total Contributions, as a % of GDP 0.38 0.32 0.32 0.33 0.29 0.36 0.38 0.39 Employer Contributions, as a % of Total contributions ND ND ND ND ND ND ND ND Employee Contributions, as a % of Total contributions ND ND ND ND ND ND ND ND Total Benefits, as a % of GDP 0.18 0.16 0.16 0.17 0.18 0.19 0.29 0.20 % of benefits paid as a Lump sum 37.10 25.32 17.79 21.13 12.00 14.50 20.22 15.67 % of benefits paid as a Pension 62.90 74.68 82.22 78.74 75.56 85.50 79.78 84.33 Membership (in thousands of persons) 1 Total membership 365.37 391.65 431.83 447.46 429.00 526.59 542.39 514.53 % of Total active membership 89.15 89.17 89.41 89.34 89.28 89.67 89.22 88.82 Of which: % of Deferred membership ND ND ND ND ND ND ND ND % of Passive membership 10.85 10.83 10.59 10.66 10.72 10.33 10.78 11.18 Other beneficiaries ND ND ND ND ND ND ND ND Number of Pension Funds/Plans Total number of funds 19 20 20 21 20 21 20 19 Total number of plans ND ND ND ND ND ND ND ND Note: Data refer only to Pensionskassen. 1. Membership figures reflect membership rather than people. Therefore a person may be a member of more than one types of plan at any one time, particularly if the person has a number of employments in the year. ND = data not available NA = data not applicable Source: OECD, Global Pension Statistics January 2011 2

PUBLIC PENSION AUSTRIA: THE PENSION SYSTEM S KEY CHARACTERISTICS The public pension system covers private sector employees earning 341.16 a month or more, the self-employed and, since 2005, public sector employees. The new NDC system guarantees pension benefits according to the 45-65-80 formula, meaning that after 45 years of contributions and retirement at age 65, the old-age pension will amount to 80% of lifetime earnings. Those who were over 50 on 1 January 2005 are exempt from the reformed system, those who were younger than 50 are entitled to benefits calculated by a combination of old and new provisions. Pension insurance contributions amount to 10.25% of earnings for employees. Employer contributions are 12.55%. Maximum monthly earnings for contribution purposes (employee and employer) amount to 3,750. The Austrian state steps in to guarantee minimum pensions and cover any deficits. The normal retirement age is 65 for men and 60 for women (gradually rising to 65 by 2033). Those insured under the new 2005 system qualify for retirement benefits when they have at least 180 months of insurance coverage over the past 30 years, including at least 84 months while in employment, but different rules apply to those who were insured before 2005. According to the Austrian National Bank, employees currently start withdrawing benefits at the average age of 57.7. The assessment base for benefits is currently equal to the (adjusted) average best 18 years up to a maximum of 3,131.94 per month. The average earnings period will increase to 40 years in 2028. The accrual rate is 1.88% (1.78 from 2009). Maximum benefits amount to 80% of pensionable salary, which will be attained after 45 years of contributions. For those whose coverage started after 1 January 2005, benefits are calculated on the basis of 1.78% of the sum of contributions for each year plus the sum of the adjusted annual contributions of all years of contributions divided by 14. Maximum monthly pension benefits amounted to 2,480 in 2005, while an income-tested top-up is available for low-income pensioners. Benefit payments are taxed when they are paid out. Pension benefits are indexed in line with the CPI. The government has set a cap of between 5% (2004) and 10% (2024) on public pension benefit cuts resulting from the reforms. Maximum early benefits amount to 80% of average lifetime earnings, which will be achieved when the insured person has contributed for 45 years. Early retirement is possible from age 62, but a 4.2% actuarial discount is made for each year of retirement before age 65. Certain groups, such as heavy workers, enjoy a beneficial actuarial discount of 1.8%. Deferring retirement is encouraged by virtue of an actuarial bonus of 4.2% per year for each year after 65 until age 68. According to OECD estimates, the gross replacement rate for average earners amounts to 78.3 (93.2% net), making the Austrian public pension system one of the most generous ones in the OECD area (OECD average: 56.4%). January 2011 3

OCCUPATIONAL MANDATORY Coverage The new mandatory severance pay system applies to all employment relationships that commenced after 31 December 2002. Employers and employees can choose to incorporate it into existing terms of employment by written agreement. The coverage rate in 2006 was 43.19% of employees. Contributions Employers pay a mandatory contribution equivalent to 1.53% of an employee s salary. Employees, however, cannot make contributions. Benefits Employees may choose to receive the benefit of their individual defined contribution accounts as a lump sum or as an annuity when they reach the normal retirement age for public pension benefits. Taxation The mandatory portion of employer contributions (1.53% of the payroll) is not taxable, but any additional voluntary contributions are taxed. Employee benefits are tax-free if paid out as annuities, but lump sums are liable to a 6% income tax. OCCUPATIONAL VOLUNTARY Coverage Collective bargaining agreements can require employers to enter into a pension contract with a Pensionskasse. Pensionskassen manage plans for groups of at least 1,000 beneficiaries and in 2006 they covered around 13.2% of the labour force. Contributions Plans are funded by employer contributions. Employees may make additional contributions on a voluntary basis. They must not, however, exceed the sum of annual employer contributions, the level of which is set in the pension contract between the employer and Pensionskasse. The average annual contribution per active member was EUR 1 290 in 2005. Benefits Benefit levels are laid down in the pension contract signed by employer and Pensionskasse. Benefits are generally paid out as life-long pensions or as lump sums if total benefits are below EUR 9 900. The Pensionskassen themselves pay out benefits. Taxation For pension-saving purposes, employer and employee contributions are held in separate funds and governed by different taxation rules. Employer contributions are income-tax deductible up to a ceiling of 10% of the payroll. January 2011 4

As regards defined benefit plans, however, the only tax-deductible contributions are those that go towards pensions that yield benefits of 80% of an employee s income. Employee contributions are tax-deductible as special expenses. Investment income, too, is tax-exempt. Benefit payments financed by employee contributions are taxed at a quarter of the ordinary income tax rate, while the portion of benefit payments financed by employer contributions is also liable to taxation. PERSONAL VOLUNTARY Coverage Any taxpayer under the age of 62 may join the state-sponsored retirement provision arrangement. Contributions Contribution levels are set forth in the contract between contributor and provider. The state tops up contributions by a percentage which varies each year until the contributor reaches 62. The 2007 percentage was 9%, or a maximum state top-up of EUR 190. Participants must make payments for at least 10 years, during which time their savings are locked in. Benefits Benefits can be paid out from the age of 40 in the form of a taxable lump sum or tax-exempt annuity. In the latter case, the accrued benefits must first be transferred to a Pensionskasse. Benefits can also be reinvested on a tax-exempt basis. Taxation Contributions and investment income are tax-exempt, while benefit payments are not taxed if they are paid out as a monthly annuity after retirement age. Benefits and capital gains are taxed if paid out before retirement. MARKET INFORMATION Occupational mandatory On 31 December 2007 there were nine staff provision funds on the market: APK, BAWAG Allianz, BONUS, BUAK, Niederösterreichische, ÖVK, Siemens, VBV, and Victoria-Volksbanken. Each fund manages one collective investment undertaking. There are approximately 319 400 membership contracts, according to the Financial Markets Authority. Total assets in the severance pay system amounted to approximately EUR 1.6 billion. Staff provision funds must guarantee a minimum severance pay a so-called capital guarantee and are free to promise higher guarantees. The capital guarantee obligation tends to drive staff provision funds to choose conservative investment options, but participants in severance pay systems can switch to other staff provision funds, pension funds (Pensionskassen), or to pension annuity insurance accounts (see below). January 2011 5

Occupational voluntary In December 2007 the total number of participants was 536 859. There were 19 Pensionskassen, 15 of which served only one employer, managing assets worth EUR 12.9 billion (USD 18 billion). The market is dominated by the three largest market participants, namely APK- Pensionskasse AG, ÖPAG Pensionskassen AG, and VBV Pensionskasse AG, which account for approximately two-thirds of the market. Personal voluntary The PZV product has proved popular over 988 000 people had joined by the end of 2006. PZV contracts are offered by over 20 different insurance companies and pension investment funds (Kapitalanlagegesellschaften). Though legislation requires contracts to have a duration of at least ten years, they run for 20, 30, or even 45 years, in practice. Total contributions amounted to EUR 690 million in 2006. Providers must appoint a guarantor (except where they have established an internal risk model) and may be required to hold additional reserves. POTENTIAL REFORM Due to demographic developments and its generous public pension benefits, the Austrian budget faces challenges. At present, the Ministry of Finance considers raising the retirement age and further encouraging workers to save for retirement through occupational or personal pension arrangements. KEY LEGISLATION REFERENCE INFORMATION 2006: Regulations relaxing investment limits for Pensionskassen passed. 2004: The Harmonisation of Austrian Pension Systems Act reforms the state pension system. 2002: The Act on Corporate Staff Provision (amended in 2006) introduces the new severance pay system. It regulates the setting-up and management of staff provision funds (investment limits, capital requirements). 1990: The Pensionskassen Act regulates the Pensionskassen system. KEY REGULATORY AND SUPERVISORY AUTHORITIES The Ministry of Social Affairs and Consumer Protection: chiefly responsible for supervising the Austrian public pension system: www.bmsk.gv.at/cms/siteen/. The Ministry of Finance: regulates private pensions: http://english.bmf.gv.at/. The Financial Market Authority (FMA): Austria s chief financial supervisory body. It carries out risk-based supervision of pension entities. KEY OFFICIAL STATISTICAL REFERENCE AND SOURCES ON PRIVATE PENSIONS FMA (2007), Supervision of Staff Provision Funds, Annual Report of the Financial Market Authority, OECD, Paris, www.fma.gv.at/jbinteraktiv/2007/en/_index_frame.htm. January 2011 6

FMA (2007), Pension Company Supervision, Annual Report of the Financial Market Authority, OECD, Paris, www.fma.gv.at/jbinteraktiv/2007/en/_index_frame.htm. OECD, Global Pension Statistics project, www.oecd.org/daf/pensions/gps. January 2011 7

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