BERLIN, March 15: A German government commission set up to advise on amending the current system of pensions taxation proposes higher tax on pensions and tax relief on pension contributions, the finance ministry said on Saturday.

The panel suggests that German pensioners pay progressively higher taxes from 2005, while contributions payers should gradually be relieved from paying tax on their contributions, finance ministry spokesman Joerg Mueller said on Saturday.

Mueller said the ruling would not affect current pensioners.

Details of the complicated model would be discussed by the panel over the weekend and would be presented to Finance Minister Hans Eichel on Monday, he said. The ministry aimed for a transition period of at least 20 years, he added.

Weekly magazine Der Spiegel said the new ruling could lead to a tax income shortfall of 22 billion euros ($24 billion) from contributions over the next ten years, which would only be partially covered by higher tax income from pensions, still leading to a financing gap of eight billion euros.

Germany’s budget deficit exceeded the EU’s three percent of gross domestic product limit last year, and EU finance ministers have ordered Berlin to take urgent steps to reduce it.

The government set up the panel after the Constitutional Court ruled in March 2002 that the current system of taxing state pensions was unfair because it treated different employees in different ways.

Currently, civil servants are taxed on all their pension benefits whereas other employees, because their contributions are taxed, are only charged on a part of their pensions.

The court ordered the government to begin changing the current arrangements by 2005 while leaving the length of the transition to a new system open, effectively giving the government a free hand to adjust the system over several years.—Reuters