GERMANY - Hamburg has created a new €1.33bn fund to meet pension obligations from 10,000 people employed at five institutions owned by the German city-state.

Hamburg's finance ministry said the creation of the pension fund was necessary as the five institutions did not set aside enough reserves to meet the obligations.

"There was a vague expectation that the pensions (for the employees) could be paid by higher revenues at the institutions," noted Wolfgang Peiner, Hamburg's finance minister. "It didn't happen, and now something has to be done."

The institutions are LBK Immobilien, a real estate firm, a cemetery operator, a health clinic, a firm for care of the elderly and an institution for university students.

To create the fund, called HVF, Hamburg is transferring €1.05bn worth of assets from LBK Immobilien and HSH Nordbank, a German Landesbank in which it has a majority stake. The city is also providing a cash injection equalling €324m which stems from a tax surplus last year.

The €324m in cash will be used to meet the pension obligations until the end of 2008. From 2009, dividends from the €1.05bn in assets are to be used to meet the obligations, though the city will have to provide another €20m in cash.

Peiner said that by creating HVF, the city government had found a "solid financial solution to the steep pension obligations from the employees."

To pay the pensions of its civil servants, the city of Hamburg also spends nearly €1bn each year. Like seven other German states, it has formed a pension fund for these obligations.