GERMANY - One of Germany's largest Pensionskassen was able to increase its financial reserves by nearly 7% despite volatile markets, posting returns of 3.3% over the course of 2011.

According to its annual report, the scheme saw assets under management rise by €714m to €22.5bn - allowing it to offer members indexation of 3.5%.

The scheme said an expected indexation of 4% had been impacted by market reactions to write off Greek debt.

Rainer Jakubowski, member of the board at BVV, said: "A substantial amount of the effective write-offs in 2011 needed to be implemented after the end of the year, but before our annual results were finalised.

"As a result of this particular situation, the net indexation fell to 3.5%, despite the average indexation level being 4% and the expanded net indexation amounting to 5%."

However, BVV said that, in the current environment, euro-zone sovereign bonds had been ruled out as an investment option, adding that it expected the low-yield environment to continue into 2012.

As a result of the ongoing financial turbulence, BVV has sought to strengthen its financial standing over the past year, resulting in an increased risk reserve of €770m, exceeding by 0.6 percentage points the minimum buffer level of 4.5%.

Looking towards the challenges of the next year, board member Helmut Aden struck a note of caution about the introduction of Solvency II on occupational pension funds, calling it "wholly unsuitable".

"The unnecessarily high capital reserve demands could only be met through either contribution increases or benefit cuts funded by employers and employees," he said.

Aden said the proposals posed a "very serious danger" for the already successful model of occupational pension schemes in Germany.

BVV recently announced the launch of an investment vehicle giving it better access to international real estate markets in an effort to increase property investments from 6.5% to the targeted 8%.