Pensionskassen are required to give a guarantee for the funds invested unless the provision of this minimum yield guarantee has been excluded. The following sections describe in simplified terms how this guarantee is structured.
The Pensionskasse is generally required to provide the minimum yield guarantee for the funds it invests. However, this minimum yield guarantee can be excluded in the pension company contract entered into between the Pensionskasse and the employer. In such cases a pension company commitment without minimum yield guarantee exists. The condition for such an arrangement is that a waiver of the minimum yield guarantee has been stipulated in an agreement between the employer and the employees (shop agreement or collective agreement). The consent of the employees (or their representatives) is not necessary with a pension company model based on defined benefits. This is because, in the case of defined benefit commitments, the employer bears the investment risk and the employer contributions are adjusted based on the investment result.
The notion behind waiving the minimum yield guarantee is to provide for more cost-effective and flexible management options. Under a minimum yield guarantee, any deficit that results is required to be covered from the own funds of the Pensionskasse. In waiving the minimum yield guarantee, the Pensionskasse should achieve potential economies as well as enhanced flexibility, in particular as a result of not using its own funds.
The option of waiving the minimum yield guarantee also corrects competitive disadvantages arising when institutions for occupational retirement provision based in other countries of the European Economic Area are active in Austria. Based on the applicable law of the country of origin, the latter are usually not required to provide any binding yield guarantee.
More than three quarters of all beneficiaries have waived the minimum yield guarantee (as at the end of 2014).
The minimum yield guarantee refers to the investment yield of a particular investment and risk sharing group (the technical account balance is not covered by the guarantee). With regard to insurance and investment risks, the beneficiaries (i.e. the individuals entitled to benefits from the Pensionskasse and those already receiving benefits) are managed by one or more investment and risk sharing groups. Employees' assets are invested jointly in the investment and risk sharing groups so as to balance any risks.
The UDRB is a weighted average of the yield rates of federal government bonds listed on the Vienna Stock Exchange. As of April 2015, the UDRB replaced the secondary market yield (SMR). The UDRB is based on an extensive database, including both stock exchange and over-the-counter (OTC) transactions.
over the previous five years.
If the target value based on the average government bond yield weighted by outstanding amounts is greater than the reference value, a deficit is to be calculated. The pension benefit resulting from annuitising the deficit is to be credited to the beneficiaries (recipients) in the following year, paid out of the Pensionskasse's own funds.
Once a deficit has been identified, a reference value is to be calculated in the following years in addition to the deficit required to be re-calculated each year. The reference value is calculated in the same way as the deficit, with the calculation period being extended by one year in each of the following years. The deficit and the reference value are compared. The higher of the two values is annuitised and credited to the beneficiaries (recipients) from the own funds of the Pensionskasse in the following year. The credit is independent of the type of pension commitment and the amount cannot be credited with retroactive effect.
Details of calculation procedures are defined in the Minimum Yield Regulation (Mindestertragsverordnung).
The auditing actuary is obliged to verify that the calculation of the deficit and of the reference value as well as their annuitisation comply with the provisions set forth in the Minimum Yield Regulation and the Pensionskasse's approved business plan.
To ensure the capability of meeting minimum yield commitments, the Pensionskasse is required to build up a minimum reserve. This reserve may be used only to cover benefits arising from minimum yield obligations.