GERMANY - Only about half of the Pensionskassen competing for pension business nationwide have a viable long-term business model, according to the consultant Rauser Towers Perrin (RTP).

RTP said this was in part due to the fact that the Pensionskassen had recently lost a "tax advantage" relative to other forms of pension administration, notably Direktversicherungen, direct insurance contracts. Direktversicherungen are also a major pensions product from German insurers.

"Only those funds which still have true advantages vis à vis Direktversicherungen have a long-term chance of survival in the market," observed Stephan Birkner, an RTP consultant who directed the new survey of 31 Pensionskassen.

RTP said that of the 31 schemes, only about half had these advantages. They include low administration costs, sound advice and products that were transparent and cost-effective.

Indeed, RTP feels that between five and 10 Pensionskassen could disappear from the market soon. Together, the 31 Pensionskassen surveyed insure around one million employees, who contribute €3.1bn annually.

Beyond the loss of the tax advantage, Pensionskassen face competitive pressure from Pensionsfonds, Germany's answer to the Anglo-Saxon pension fund that was launched in 2002.

While these vehicles had a slow start in their first few years, they have become more popular, partly because the government improved their competitiveness last summer. German multi-nationals like Siemens have recently launched Pensionsfonds for their liabilities.

Owing to buoyant equity markets, returns for Pensionsfonds in 2005 were also at least double those of Pensionskassen. According to the RTP study, returns for Pensionskassen were between 3.5% and 5.5% in 2005 - virtually unchanged from 2004.

RTP's survey also found that an increasing number of Pensionskassen were conducting asset-liability studies internally instead of via the help of a consultant.

Following government reforms in 2002 that aimed to promote outsourcing of pension liabilities to external funds, many German insurers launched Pensionskassen in the hopes of attracting significant volumes.

Like the insurers they are tied to, the Pensionskassen, via conservative investing, provide a guaranteed annual return of 2.75%. All told, this form of administration accounts for one-fifth of the €381bn in corporate pension assets.

While three new Pensionskassen were launched in 2005, bringing the total figure to 34, there have been no new vehicles created in 2006.

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