GERMANY – Take-up in German company-sponsored pension schemes has risen substantially – and is developing into a “new strong pillar”, a new report says.

Take-up of the schemes rose from 35% at the end of 2001 to 42% in 2003, said consultancy Infratest Sozialforschung.

The news emerged in Iniziativbanking, the client magazine of the 270-member west German co-operative of banks, Westdeutschen Genossenschafts-Zentralbank, or WGZ.

“While the level of the state–provided pension cover continues to sink, company pension schemes, as well as the private sector, is developing into a new strong pillar for the German pension market,” Initiativbanking says.

According to the magazine, the reason for the success lies in the “essentially stronger sponsorship in pension_scheme from the state since 2002” and the “pay-switch” option, “Entgeltumwandlung”.

The Entgeltumwandlung requires employers to offer their employees a company-pension plan through setting up pension schemes, insurance deals, support-schemes or pensionskasse, the publication says.

The law, in force since January 2002, allows employees to set aside a percentage of their wages towards their pension schemes.

In 2003 the credit and insurance sectors maintained their three year-lead, with a take-up rate of 80%. Next were durable goods makers, where the rate grew from 53% in 2001 to 60% in 2003.

With an increase of 15 percentage points from 39 to 54%, the manufacturing sector was third.

And the trend is likely to “remain positive” in the future thanks to the tax advantages connected with pension schemes, a spokesman for consultant Beratungsgesellschaft fuer betriebliches Vorsorgemanagement said.

A spokesman for Union Investment Institutional GmbH, a Frankfurt-based company with 1,800 employees, confirmed in an interview that pension schemes are likely to become more and more popular.

Of the 550 Union Investment Institutional employees who considered the Entgeltumwandlung as a pension-option, 220 accepted - a rate of 40%.

These workers, who are to pay on average 8,000 euros a year, may soon be joined by other workers in the near future, the spokesman said. “I would guess that the ratio will increase from 40% to 60% in the next five years.”