GERMANY - A key figure at the German association of local and church pension schemes (AKA) has claimed postponing funded pension schemes because of the financial crisis could be detrimental to trust in the pensions system.

A number of German provinces have set up funded pensions systems over recent years.

But over recent months, the German province of Niedersachsen has halted plans to create a pension fund for civil servants while Bavarian officials have frozen payments to a similar vehicle. (See earlier IPE stories: Brandenburg starts to fund pension and Bavaria freezes contribution to public pension fund)

Klaus Stürmer, managing director at AKA, whose association represents over six million employees in municipalities or churches including local government civil servants, has warned he is sceptical about these decisions.

“People have to have the certainty that once they commit to paying into a funded system the rules will not be changing half way through,” said Stürmer.

“There has to be sustainability in those decisions made by the authorities as well as in the investments,” Stürmer added.

In principle, he noted, the creation of a funded element in the retirement provision for civil servants and other public employees was “to be welcomed” but only if it is seen through.

There also has to be certainty that the pension assets are completely separate from the rest of the budget; something which is working well in local government, Stürmer pointed out, but some provinces have used allocated pension money to reduce debt.

One additional question that remains to be solved, relating to funded civil service schemes, is what happens to civil servants who leave public service before they retire.

Until now, their pension payments were transferred to the public first pillar pension regime and indivduals would then receive an employee’s pension at retirement.

This often was an incentive to stay in public service as a civil servant’s pension is on average much higher.

“In some administrations, there are discussions about leaving accrued pension assets in the civil servant schemes, which will only be paid out on retirement,” said Stürmer, who argued this might change people’s willingness to switch between the public and private sector.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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