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Germans Shun State-Backed Private Pensions, Institute Says

 August 19, 2003

Aug. 19 (Bloomberg) -- Germans are shunning government-backed private pension plans introduced in 2002 and designed to reduce people's reliance on state retirement benefits, the DIA Institute for Pension Insurance said.

The number of people investing in private pensions fell to 5 million in the first half of the year from 5.1 million in 2002. Some 300,000 pensions plans were canceled, exceeding the 200,000 new contracts signed in the first six months, the DIA said.

``The never-ending debate about welfare cuts is prompting people to back off from higher investments,'' said Markus Jaehnig, a spokesman for the DIA, sponsored by Deutsche Bank AG.

Chancellor Gerhard Schroeder last year introduced subsidies and tax breaks worth $9.5 billion for people taking out private coverage. Some 23.5 million retirees among Germany's 82 million inhabitants rely on state pension payments.

Allianz Lebensversicherungs-AG, Germany's biggest life insurer, last year sold 534,000 so-called Riester pensions, named after the former German labor minister, Walter Riester, who steered the pensions tax breaks through parliament. The government estimates 20 million Germans are eligible.

Schroeder, under pressure to renovate a pension system strained by the dual burden of rising life expectancy and a shrinking workforce, is considering freezing pension benefits and raise the retirement age to rein in growing costs.

An advisory panel led by wise man Bert Ruerup will present its recommendations on changes to the pension system next week. 

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