Reform of Severance Pay Law in Austria - mutual learning programme

DISCUSSION PAPER
In the new system the level of severance payment depends on the performance of the MVK’s on
the capital market. Only the nominal contribution paid by the employer is guaranteed by law. The
ministry of finance expected an average annual net yield of 6 % of the investment of severance
pay. In 2003 the MVKs did not promise an investment yield higher than between 3% and 4%. In
order to compete, they promoted their investment capacities. In 2004 and 2005 the MVK’s
performed an average annual net yield of 4.6 % and 5.5 %, respectively (see Figure 4).
Figure 4: Performance MVK’s
Source: Oesterreichische Kontrollbank
The MVK’s can invest in the following categories:
• bank assets (at most 25% at the same group of credit institutes),
• loans and credits,
• bonds,
• equities (at most 40 %),
• share certificates of investment funds.
In principle at most 50% could be invested in foreign currency and at most 10% bonds and
equities of the same company are permissible. The uncertainty and possibility of disbursement of
severance payment implies a rather conservative portfolio composition. Figure 5 shows the asset
allocation of the MVK’s. In 2005 only 7.5 % of the assets of the MVK’s are invested in equities.
The MVK’s argue that a high return is only possible, if the portfolio contains more equities.
However, due to the possibility of disbursement the expected holding periods are rather short and
do not allow a higher share of equities. According to first estimates and the experience in 2006,
every second employee eligible for payment will opt for disbursement.
30 Nov - 1 Dec 2006 Peer Review Reform of Severance Pay Law, Vienna
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