GERMANY – The International Monetary Fund says funded pension schemes could provide a boost to the German financial system.

But it warned that such schemes need to be simplified to be attractive.

“Funded pension schemes such as Riester pensions could also stimulate the German financial system, as they have done in other countries, but this requires simplification of these schemes to increase their attractiveness,” the IMF said in a report on Germany.

And it said that Real Estate Investment Trusts should also could also play an important role in developing capital markets, despite tax difficulties.

The fund said the Agenda 2010 reform programme was a “forceful start” that would yield substantial and lasting benefits.

But it added that Germany’s public debt is projected to increase sharply due to the impact of ageing on pensions and health care spending. “Policies therefore need to be realigned with what a declining population can reasonably deliver and expectations need to adjust accordingly.”

The comments follow recent remarks from Deutsche Bank’s chief economist Norbert Walter, who envisaged an “older and emptier” Germany in 20 years time.

The IMF said Germany - “in view of the increasing pressure from ageing” – should aim to eliminate the structural deficit by 2010. One-off measures such as privatizations “should be avoided”.

The Washington-based fund added that current social security benefits are too costly, “given the demographic profile”.

It said: “An equitable recalibration of benefits that includes increasing the retirement age and shifting health care financing away from payroll taxes can contain non-wage labor costs and other taxes.”