Official proposals for funding Germany's occupational pension schemes won initial support from both industry and government. But how the new funded schemes would be taxed remains a hot issue.

Juergen Stark, secretary of state at the Finance Ministry which commissioned the report, said the results were positive. The three new means of funding occupational pensions constituted an appropriate way of strengthening this second pillar of pensions provision in Germany, with employees being able to benefit from stock returns, he said.

In particular, the proposed investment-orientated pension fund vehicle would give employers flexibility. For the first time in Germany, this would allow employers to provide contribution-based pensions, Stark said.

However the proposal that pensions provision should be subject to deferr-ed taxation left public finances with no room for manoeuvre, he added.

Michael Lubnow, managing director of ABA, said the association had formed a provisional opinion on the working party's recommendations. We support the idea of a guaranteed minimum pension, and this was one of our ideas," he said.

Whichever type of funding method was eventually employed by this second pillar, it was essential that taxation was on a deferred basis, rather than pensions contributions being subject to tax, Lubnow said."

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