GERMANY - The European Commission is taking Germany to court over the failure of its local governments to award contracts for deferred compensation plans in a manner consistent with EU competition law.

Since 2001, employees across Germany - including 2.1 million people working for local governments - have had the right to contribute part of their salary to some form of deferred compensation pension scheme, set up by financial service providers such as insurers, banks and pension funds.

According to the Commission, the association of local German employers (VKA) and the German trade union (ver.di) agreed in 2003 only three distinct service providers could set up deferred schemes for civil servants and other employees at local level.

But this meant "a large number of insurance companies" were excluded from the market, the Commission said.

The three groups of service providers included in this employer and trade union agreement, according to the Commission, were state-owned savings banks (Sparkassen), municipal insurance companies and state-owned pension funds.

As a result, the Commission said it was referring the case to the European Court of Justice in Luxembourg. If the case is tried, the Commission will be the plaintiff and the federal government in Berlin the defendant.

"Municipalities and municipal enterprises are public contracting authorities. They are obliged to award their contracts through competitive procedures complying with EU law rules on public procurement," the Commission said.

However, Germany's VKA disputes the Commission's findings.

"The agreement from 2003 does not exclude other financial service providers beyond the three mentioned. We simply said that we would continue to work with them as we have done for decades," Hartmut Matiaske, managing director at the VKA, told IPE.

"In fact, there are cases, for example in Lower Saxony, where financial service providers beyond the three groups have set up deferred compensation schemes," Matiaske said.

Major domestic insurers offering deferred compensation plans in Germany include Allianz, AMB Generali, the Ergo group and Talanx while foreign-domiciled insurance firms offering pensions access include Canada Life, Skandia, Standard Life and Zurich.

The Commission's latest action comes just two days after German pensions minister Franz Müntefering said he would extend a social tax exemption for deferred compensation schemes to maintain their attractiveness.