GERMANY - Pensioners who have so far enjoyed tax privileges will gradually pay more from next year until 2040, says a top German finance official.

In return, yearly contribution to integrative pensions would be gradually tax free, the official said.

And under the new pension taxation bill passed by the Bundestag last Thursday, the fragmented second-pillar tax regime would be also be consolidated.

"I know that there are many arguments in favour and many against it,” state secretary for the finance ministry, Volker Halsch, told the annual meeting of ABA, the German association of company pension schemes in Bonn.

Halsch explained that demographic and financial changes in the country made changes necessary.

The new bill, which the upper chamber the Bundesrat is due to discuss on May 14, has already split public opinion. Unions have showed mixed feelings and the opposition has criticised it as complicated and inconclusive.

Labour minister Walter Riester, architect of the reform which bears his name, was quoted as saying: "We are in a long-term reform process."

Finance minister Hans Eichel stressed that the new law would not apply to those whose monthly income is lower than 1,575 euros a month. "The majority of the pensioners receiving Sozialversicherung (social insurance) will remain

"The decision is a good one for all the parties involved,” said Bert Ruerup, who headed a commission on pension reform. “Finally through the law all the pension provisions would be brought to the same level."