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Secure private and corporate pension schemes

Vienna, February 13, 2009
The global financial crisis has not only hit banks around the world, due to negative developments of the capital markets many investments and corporate pension schemes have also suffered. Insurance products such as the classic “death and endowment insurance” and the “collective company insurance” remain stable.

Being one of the biggest investors and one of the most stable economic sectors of our country the Austrian insurance industry has also had to deal with the turmoil in the global financial markets. These are difficult times for financial investments, yet it is the customers of Austrian life insurance who still profit from guaranteed benefits.

Secure corporate pension schemes available

In comparison with the first and third pillar of our pension system the corporate pension schemes make up for a relatively small part of the Austrian old-age provision. Most of the contributions are taken up by pension funds whose biggest drawback is their inability to offer guarantees for the future pensions. As president of the Austrian Insurance Association VVO says Günter Geyer: „Thousands of future retirees whose money is being held by pension funds have to fear the loss of their money. Also because so far they have not been granted the right to opt out of these funds and into a safer, more stable system like the collective company insurance.”  

In comparison with the first and third pillar of our pension system the corporate pension schemes make up for a relatively small part of the Austrian old-age provision. Most of the contributions are taken up by pension funds whose biggest drawback is their inability to offer guarantees for the future pensions. As president of the Austrian Insurance Association VVO says Günter Geyer: „Thousands of future retirees whose money is being held by pension funds have to fear the loss of their money. Also because so far they have not been granted the right to opt out of these funds and into a safer, more stable system like the collective company insurance.”  

Collective company insurance is a model of provision in the form of a life insurance policy with guaranteed pension payments and a peak level guarantee - meaning that once given benefits add up and remain for collecting, thus cannot be lost due to financial turmoil. Investments are made safely on the basis of risk diversification, equity exposure is traditionally low. “The financial crisis has left a lot of damage, in times of volatile markets it is the collective company insurance that still provides for safe and even rising pensions of employees”, states Geyer. “For the safety of the customers it will be necessary to install an un-bureaucratic way of enabling employees to take their money out of pension funds and put it into the safe haven of the collective company insurance.”

To strengthen company pension schemes as such, Geyer detects various options: “Apart from state funding in the form raising allowable deductions from the current 300 Euros a year to at least 800 Euros  it would also make sense to permit variable payments and profit-sharing models.”

Changes ahead

State funding is also relevant in another form of life insurance: the unit-linked „prämienbegünstigte Zukunftsvorsorge“. Since its introduction in 2003 over 1,21 million Austrians have opted for this popular life insurance product. To keep their future pensions safe, the “prämienbegünstigte Zukunftsvorsorge” should be revised and possibly be made subject to change. “The insurance industry has asked for sensible reforming of this product for quite some time, but so far to no avail. We think it needs to be more flexible and suggest a reduction of the mandatory stock investments of 40 percent, the enablement of lump-sum payments and the possibility to use this product for a future nursing care provision”, Geyer suggests.


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