GERMANY - Almost 20% fewer German employees signed a contract with a Pensionskasse in the first quarter of 2007 compared with last year.

74,250 Germans signed a contract with a Pensionskasse, one of Germany's second pillar retirement provision vehicles with a capped equity exposure of 35%.

The other vehicle is the pension fund which can take on as much equity risk as the fund manager sees fit. 9,000 people joined a pension fund in the first quarter.

A major factor in the drop in Pensionskassen contracts is the announced abolition of social tax exemption of pension payouts, according to the German association of the insurance industry GBV.

It "urgently appeals" the exemption from social tax for parts of workers' retirement provision not be allowed to expire after 2008.

The government had announced this move in January because the exemption has caused a €2.2bn shortfall in Germany's state-run health insurance scheme.

However, social affairs minister Franz Müntefering in March said he might consider some compensation for workers after the abolition.

The GBV's latest statistics also show Germany's government-subsidised third pillar pension provision, the Riester-Rente, has continued to attract employees.

484,600 people signed a Riester contract in the first quarter - 1.8% more than last year.

More than seven million Germans have so far signed up to this supplementary retirement scheme launched in 2002.