Pension and provident funds can generate sustainably higher long-term returns if they are allowed to adapt their investment strategies to the age of their customers.
Photo credit: eap 2026
Dr. Philipp Mayer Mitglied des Vorstandes, Valida Vorsorge Management
One of the measures that the Austrian Federal Government intends to examine more closely in 2026 is opening up the possibility of life-stage investment models for pension funds – and, ideally, also for provident funds.
Currently, provident funds invest their clients' capital with a capital guarantee and are therefore limited to conservative, low-yield assets. Pension funds, on the other hand, typically follow an investment strategy defined in the employer contract, which applies uniformly to employees of all age groups.
Thus, from the pension funds customers' perspective the introduction of a life-stage investment strategy would yield significant advantages and opportunities, in particular in case legislative changes are implemented in a way that allows for a modern life-stage investment model featuring gradual de-risking with increasing age.
The right investment for every stage of life
In a modern life-stage model, the risk/return profile of the investment portfolio is continuously adjusted according to the customer’s age. This enables a more dynamic and hence profitable capital allocation during the savings phase while, at the same time, reducing volatility during the payout phase.
From dynamic to conservative investment approach
More precisely, younger customers begin with a dynamic investment approach, suitable for long investment horizons. It offers high return potential but also involves greater risks and volatility. Asset classes that are primarily used in this phase include equities, high‑yield bonds and alternative investments. Over long periods, such broadly diversified dynamic portfolios tend to deliver stronger performance than more conservative strategies.
Step-by-step risk reduction
As customers grow older, the risk level of the portfolio is gradually reduced by lowering the equity allocation and increasing the share of conservative assets such as high‑quality bonds.
By the time the customer retires, the portfolio then starts to morph into a conservative scheme with lower risks and smaller short-term value fluctuations – but also reduced opportunities for high returns. From an actuarial perspective, this translates to only minor fluctuations in the ongoing pension payments.
An individually adaptable life‑stage model would significantly strengthen the Austrian pension fund system and align it with international best practices. Similar approaches have already been successfully implemented in countries such as Denmark.
Provident funds, which manage the new severance pay scheme, could also adopt such a life-stage model. However, this would require longer investment horizons and an adapted regulatory framework for the currently integrated capital guarantee: If provident funds were allowed to invest the capital of employees and self-employed individuals throughout their entire working life, both higher returns and a capital guarantee at retirement would be achievable using a appropriate life-stage model.
Author: Philipp Mayer, Member of the Executive Board of Valida Vorsorge Management.
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investESG
investESG
