GERMANY - The retirement fund for civil servants in the German province of Rheinland-Pfalz (Rhineland-Palatinate), serves no purpose in its current form despite making a "laudable effort", a university study has found.

In 1996, the west German province was the first to set up a supplementary fund for new civil servants in addition to the mandatory retirement reserves each province must build.

The local branch of the taxpayer association has commissioned retirement expert Prof. Bernd Raffelhüschen from the University in Freiburg to look into the fund and its effectiveness.

According to Raffelhüschen, the fund was "set up too late", the reserves are "being built from loans" and large parts of the assets are flowing back into the province's bonds.

He also said he was against the idea of funding retirement provision and that postponing the province's debt burden was merely a "trick".

Since 1996, almost €1.7bn has been paid into the fund, which has grown to €1.9bn in size, including €250m in interest yields by year-end 2009.

According to the university's calculations, the average return is between 3.6% and 4.2% annually.

However, Raffelhüschen pointed out that a major retirement wave is set to occur well before 2025, when the first regular retirements from fund members are expected.

Similar to the supplementary fund, the mandatory reserves are also solely invested in the province's bonds and therefore failing to profit from the capital markets, he said.

Raffelhüschen's study also pointed to under-diversification and underfunding at retirement funds for civil servants in other provinces, which, he said, initially put less money into those reserves than Rheinland-Pfalz.