GERMANY - VVaG, the German pensionskasse for various cooperatives, managed to grant its members 4.8% interest for 2008 and generate a positive return, because the pension fund had held no exposure to equities.

VVaG's portfolio managed to return 4.6% in 2008 compared to 5.7% in 2007 but members have effectively been given a return of 4.8% as assets were topped up by gains held in the buffer fund. As insurance-based vehicles, German pensionskassen have to guarantee a minimum return, some of which comes from the portfolio return, while the rest from buffers.

The €282.15m fund had divested fully from equities in 2007 and never ventured into asset-backed securities or structured credit products.

The fund was also able to increase the interest granted to its 21,000 members by 0.3 percentage points compared to 2007, as the portfolio had an asset allocation of 77% in registered bonds, 18% in fixed-income instruments, 7% in land and 9% in deposits - assets which held relatively firmly during last year's financial markets turbulence.

At the same time, the pension fund's annual report revealed almost 92% of its investments were in the financial services industry.

Thomas Schätz, a member of the board at the VVaG pensionskasse, said the insurance-based retirement provision was a security factor for the system but claimed pensionskassen had higher risks in their portfolios because they held "equities and eastern European government bonds".

Discussing the wider pensions system, Monika Queisser, a pension expert at the OECD noted "the German retirement system has proven comparatively robust in the the financial crisis", though commenting on the most recent OECD report on pensions worldwide, she pointed out a higher unemployment rate could put pressure on the German system. (See earlier IPE-story: OECD fears pensions backtrack in economic pressure)

The recent OECD report also claimed third pillar savings, such as Riester, are on a very high level in Germany even among poorer people because of the generous state subsidies given.

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