The number of third pillar premium-subsidised retirement provision (PZV) contracts have almost halved since 2023, according to a report by the Financial Market Authority Austria (FMA).

FMA’s report, The market for premium-subsidised retirement provision 2023, which looks into Austria’s third-pillar pension system found that at the end of 2023 assets under management totalled €8.8bn.

FMA said the market for PZV’s, which are a voluntary form of retirement saving, has been declining for years since the significant reduction in state subsidies in 2012 and in view of the unattractive investment results in the low interest rate environment.

For example, the number of valid PZV contracts has almost halved since the record level of more than 1.6 million in 2012 to 839,000 in 2023. In 2023 alone, the decline was 64,000 contracts, a decrease of 7.05 per cent compared to the previous year.

Although the number of newly concluded contracts rose from 6,130 to 7,450 in 2023 compared to 2022, and in the previous 10 years, the FMA said it is far from compensating for the number of contracts that have expired or been terminated.

However, since PZV is a product with very long maturities, annual premium inflows were still considerable at around € 670m, despite a minus of -4.95 per cent compared to the previous year. Total assets under management increased by +2.46 per cent to €8.75bn, up from €8.54bn in 2022.

After a challenging market environment in 2022, in which both equity and bond markets showed negative performance due to rising interest rates, the positive equity markets and no further increases in interest rates ensured a positive investment environment in 2023.

Accordingly, the insurance companies achieved a volume-weighted investment performance (before costs) of +6.11 per cent (2022: -8.83 per cent) for their PZV products. The benchmark portfolio calculated annually by the FMA for comparison, consisting of 30 per cent Austrian equities (weighted in the ATX) and 70 per cent 10-year Austrian government bonds, increased in value by +10.73 per cent in 2023.

However, as a state-subsidised pension product, the legislator obliges providers to guarantee that the nominal premiums paid will be received.

Since 2012, when the state premium for the promotion of PZV products was halved, it has been 4.25 per cent; the highest possible premium benefit payment in 2023 was €3,222.18 (2022: €3,123.04), resulting in a maximum government premium of €136.94 (2022: €132.73). Although it has risen for the twelfth year in a row, it is still significantly below the € 210.35 at the peak in 2009, FMA said.

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