Germany – The conservative opposition in Germany would make permanent the tax exemption for employee contributions under the so-called Riester pension if it comes to power after next year’s federal election, according to a senior party official.

Andreas Storm, the CDU/CSU’s parliamentary spokesman on pensions, said that if his party were elected in the September 2006 poll, the new government would undertake a sweeping pension reform in early 2007.

“An important part of that reform would be to lay the legal groundwork for employee contributions under Riester to be permanent. Although Riester has not lived up to expectations since its launch, it is needed to strengthen the second pillar,” Storm told IPE on the margins of a conference held by aba, Germany’s occupational pensions lobby.

Aba is currently urging the current centre-left government, which launched the Riester pension in 2002, to make the tax exemption permanent. If nothing is done, it will expire in 2008.

Turning to Germany’s state-run pension scheme, Storm stressed that its financial state had become extremely precarious. “For this year and next, the state scheme faces a Euro 5.7 billion deficit. And the trouble is, the sustainable reserve which is used to cover that deficit is quickly dwindling,” he said.

Storm estimates that the sustainable reserve – which by law must equal 20% of the Euro 15 billion in monthly pension expenditure – will be between 10% -15% of that sum by the end of 2005. At the end of 2004, the reserve was 32% of the Euro 15 billion figure.

Storm also said that if Germany’s economy remained weak in the mid-term, the contribution to the state scheme could rise to as much as 24% of a monthly salary. The contribution currently equals 19.5% of a monthly salary and is shared between employees and employers. If the contribution were to rise, this would be a further barrier to creating jobs in Germany.

To avoid this scenario, Storm said a Conservative-led government would, beyond strengthening the second pillar, encourage more employment among 50 to 60-year-olds and put the state-run scheme on a more sustainable footing.

He added that if these things were done, state pensioners could still expect a benefit that equalled up to 50% of their last salary from 2035.