Austria needs a strong second pillar to ensure the pensions of future generations, experts from Austrian pension provider Valida and ECO Austria have said.

Speaking at a recent press conference, Valida Vorsorge Management and ECO Austria discussed the main challenges facing the Austrian pension system and presented proposals on how the system can be stabilised in the long term and be made fit for future generations.

The Austrian pension system is based almost exclusively on the pay-as-you-go system, with more than €30bn in government subsidies needed annually to finance current pensions.

However, at the same time, Valida explained that the burden is growing due to demographic changes, including the fact that the ratio of working-age people to pensioners in Austria is projected to have fallen to 2:1 by 2050, compared to 9:1 in 1910.

ECO Austria director, Monika Köppl-Turyna, highlighted Denmark as an example of a system that has both pay-as-you-go and funded pensions, which is “significantly” more resilient and enables greater long-term benefits.

"In Austria, we have yet to realise the potential of the second pillar. This makes it all the more important to learn quickly from successful pension systems – not only to make our pension provision future-proof, but also to sustainably strengthen our competitiveness," said Köppl-Turyna.

Adding to this, Valida CEO, Martin Sardelic, said: “The financial pressure on the Austrian state is enormous, while at the same time the second pillar is still too weak to sustainably stabilise the pension system in the long-term. Countries such as Denmark show what a sustainable system with a strong second pillar can look like.”

A stable mixed system, in which around 30 per cent of pensions come from the second pillar, as suggested by Valida board member, Philipp Mayer, could secure pensions for future generations.

"A toothpick thus becomes an important pillar in the system. A multi-pillar model spreads risks much more widely and ensures a correspondingly higher degree of stability," Mayer emphasised, noting that “occupational pension provision should be made accessible to all employed persons nationwide”.

The speakers suggested that there are benefits for all generations, the state and the economy from this mixed system.

In particular, they said the state would benefit as lower subsidies would noticeably relieve the burden on the public budget, and the economy would benefit in the long term from the higher purchasing power of future pensioners.

Meanwhile, Generation Alpha (born since 2011) would benefit from a more stable and sustainable system, while those who are employed will have better chances of receiving a higher supplementary pension due to more efficient capital investment and comprehensive occupational pension provision.

In terms of what comes next, Mayer argued that a “first important step” towards a sustainable multi-pillar model would be to increasingly dedicate severance pay to retirement savings.

“As a rule, severance pay balances should be invested by occupational pension funds until retirement and then used as a supplementary pension through a general pension fund agreement,” he continued.  

“The optimal investment is achieved through a life-stage model in which the investment strategy is continuously adjusted to the age of the customer. In this way, risks can be systematically reduced, and at the same time, significantly higher returns can be achieved over entire working lives.”

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