GERMANY - The German Federal Bank "Bundesbank" will manage the assets of the now established pension fund for Bavarian civil servants.

Since the beginning of this year, the regional government has started paying €500 per month per new employee into the fund which is set to grow to €1.6bn by 2016.

In addition to the monthly payments per new employee, the province will also inject €35m in 2008 with the payments increasing by €35m each year until 2016.

The assets will be invested conservatively with a maximum equity exposure of 20%.

"Equity investments will be exclusively index-tracking to avoid speculative risks and track general market developments at the same time," the finance ministry stated.

By law, the federal bank has to offer management services for public retirement assets for free.

However, Bavaria noted in a press release the Bundesbank was also chosen because of a good previous working relationship in managing the province's unfunded retirement reserves - set aside since 1999.

The Bundesbank is also managing the recently created fund for federal civil servants for employees working for the government since January 2007. (See earlier IPE story: German goverment approves new civil service scheme)

"With the pension fund we are securing retirement provision for Bavarian civil servants without taking out loans as other provinces and the federal government do," said Erwin Huber, Bavarian finance minister.

He added pension costs for judges, civil servants and soldiers have been calculated to grow from €3bn in 2006 to €8bn in 2050, when the number of pension beneficiaries will increase by 70% to 170,000, as a result of a major increase in the number of civil servants in the 1960s and 1970s.

The province therefore followed the example of other German provinces and decided to set up a Pensionsfonds. (See earlier IPE coverage: Bavaria sets up pension fund for civil servants and Saxony doubles fund with major injection) 

Huber stressed there will be no raise of civil servants' retirement age to 69 as demanded by some opposition parties.

"There is no reason why civil servants should work longer than other employees [whose retirement age has recently been raised to 67]," he said.

He added the problem of increasing pension costs is solved by the creation of the pension fund.

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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