GERMANY - Pensions minister Franz Müntefering has decided to prolong a social tax exemption for deferred compensation plans beyond 2008.

Müntefering's decision has yet to be confirmed by his ministry, but it fulfils a key demand of Germany's corporate pensions industry and German trade body aba has been informed of his decision.

The exemption, created by a major pension reform in 2001, means workers may contribute up to 4% of salary to a deferred compensation scheme without being hit by social tax.

This exemption was set to expire at the end of 2008 unless the government prolonged it.

IPE reported in January Müntefering's government department was prepared not to extend the exemption as it was causing a €2.2bn revenue shortfall in Germany's state-run health insurance scheme.

Indeed, addressing a German pensions industry conference in March, the minister warned: "You all knew when the exemption was created in 2001 that it would expire seven years from then."

Yet both aba and leading German pension experts such as Professor Bert Rürup had urged the government to maintain the exemption, arguing the further spread of corporate pensions - especially among smaller firms - greatly depended on it.

According to aba and Rürup, the exemption ensures employers have a cost-effective way of offering corporate pensions, and it provides employees with a crucial incentive to save.

"We don't have the full details, but we can say at this point that we're delighted about the decision. It should ensure that deferred compensation plans in Germany remain attractive to employers and employees," said Klaus Stiefermann, managing director of aba.

Sources in Berlin told IPE Müntefering's change of heart was prompted by the staunch opposition to its extinction, expressed not only by Germany's pension industry but also by the main employer and union lobbies.

"The pressure became so great that MPs from the governing coalition of Social Democrats and Conservatives also began to clamour for extending the exemption for deferred compensation schemes," sources said.

To prolong the exemption, the German pensions ministry is to unveil a draft law that must be approved by the government and parliament.

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