Old-age pension system situationin PolandOld-age pension system situationin Poland
Michał Polakowski, PhD
Basic structure of old-age pensionssystem in PolandBasic structure of old-age pensionssystem in Poland
•2 schemes: salaried workers, farmers
•Structure of the salaried workers scheme
Financing and organizationalprinciple 1st tierFinancing and organizationalprinciple 1st tier
NDC Mandatory
Financing and organizationalprinciple 2nd tierFinancing and organizationalprinciple 2nd tier
Funded Mandatory
Financing and organizationalprinciple 3rd tierFinancing and organizationalprinciple 3rd tier
Funded Voluntary
Retirement age men/womenRetirement age men/women
65/60
Return guarantees 2nd pillarReturn guarantees 2nd pillar
Internal sector return rate
ContributionContribution
19,52%: 12,22% 1st pillar,7,30% 2nd pillar
Old-age pension in Poland-assumptions of the 1999 reformOld-age pension in Poland-assumptions of the 1999 reform
transparent•Make the retirement system transparent
more fair•Make the retirement system more fair
more efficient•Make the retirement system more efficient
financially stable•Make the retirement system financially stable
Old-age pension in Poland-assumptions of the 1999 reformOld-age pension in Poland-assumptions of the 1999 reform
economic growth•Induce the economic growth
saving•Increase the level of saving
work legally•Encourage Poles to work legally
freedom of choice•Increase the freedom of choice
privatisation•Speed up the process of privatisation
2nd pillar organisation
•Private pension funds (OFE)
•Run by Pension Fund Society (PTE), joint-stockcompany
•No regulation on annuities companies so far
•Savings can be partially inherited
•Mandatory for individuals born after 1968,voluntary for 1949-1967 cohorts
Old-age pensions in Poland-early performanceOld-age pensions in Poland-early performance
•20% higher than expected inflow of members
•Extensive marketing in the second pillar
•‘Dead accounts’
•Problems with IT system-identification ofcontributions
•Unregulated distribution fees: 5.8%-10% ofcontributions
2nd pillar-Number of accounts2nd pillar-Number of accounts
Deviations from the 1999 reformDeviations from the 1999 reform
•Preferential treatment for ‘uniform’ groups andminers
•Prolonged early retirement
•Teachers
•Reduction of the disability scheme contribution
•Additional costs: approx 20% of pension spending
•Small interest in the voluntary saving
•Weak regulation of the 2nd pillar
Behaviour of the 2nd pillar companies
•Internal rate of return for the sector
•Loss-costs imposed on PTEs
•Risk-aversion, maximal charges
•Similar investment strategies
•High concentration
•Extensive canvassing in the secondary market-up to 50% of costs
2nd pillar distortions: oligopoly?2nd pillar distortions: oligopoly?
2nd pillar during the economicslowdown-assets2nd pillar during the economicslowdown-assets
Post-crisis reactionsPost-crisis reactions
•2008: the slowdown consumed the 1999-2007gains
•At the same time, PTEs yielded high gains
•1st wave of regulation in June 2009
•Decrease of a transfer charge from 7% to 3.5%
•Ceiling on the management fee of PTEs
Financing transition
Problems with financing thetransitionProblems with financing thetransition
•Plan: To finance the transition from cuts in the firstpillar
Problems with financing the transitionProblems with financing the transition
•…and privatisation
•Since 2001 (except for 2004) privatisation did notreach the plan
•Only
•State has to fill the gap by issuing treasury bonds
•The main buyer of bonds: OFEs
•The cumulated cost of rolling the debt: approx. 70blnPLN, approx 40% of contributions transferred
Problems with financing thetransitionProblems with financing thetransition
Portfolio of OFEsPortfolio of OFEs
Share of OFEs in financing publicdeficit
Public finances-Maastricht criteriaPublic finances-Maastricht criteria
•Public debt close to 55% of Poland’s gross domesticproduct-which triggers saving measures. The EUlimit: 60%
•Value of contributions transferred to the 2nd pillarequal to approx 1/3 of the public debt
•Deficit: 7.9% GDP (EU requirement 3%)
•The current system adds 2.5 percentage points toPoland’s deficit
•It increases public debt by an annual 2 percentagepoints
Public debt-social policy implications
•Public debt 55%
•no wage increases in public sector
•Pensions indexed by the increase of inflationonly
•Debt incured by transfers to 2nd pillar crowdsout other social policy needs
Reform discussionsReform discussions
•Ministry of Labour•Ministry of Labour:
–poor performance of the 2nd pillar? Similar totreasury bills
•Ministry of Finance•Ministry of Finance:
–ease the pressure by 15% of GDP in 2011–2020
•Strategic alliance•Strategic alliance
•(‘decrase the role of unpredictable funded scheme’)
•(decrease the pressure of 2nd pillar)
Old-age pensions-current changesOld-age pensions-current changes
•Less contribution to OFE: from 7.3 to 2.3 of grosssalary (to be increased to 3.5 in 2017)
•The remaing contribution: noted on sub-accounts inZUS
•The savings from the sub-account can be inherited
•The contributions collected in sub-accounts will beindexed according to the growth of nominal GDP
Old-age pensions-current changesOld-age pensions-current changes
Old-age pensions-current changesOld-age pensions-current changes
•More incentives for voluntary saving-taxdeduction up to 4%
•Change of investment limits: up to 62% inshares until 2020. Ultimately: 90%
•From 2012 no canvassing in the primary andsecondary market
Old-age pensions in Poland-further steps?Old-age pensions in Poland-further steps?
Related to functioning of 2nd pillar
•Creation of sub-funds
•Introduction of an external benchmark forPTEs
•Decreasing the distribution fee
•Linking management fee with the results ofOFEs
•Change the investment limits
Old-age pensions in Poland-further steps?Old-age pensions in Poland-further steps?
•Reduction of branch privileges
•Extension of retirement age
•Reform of the farmers’ scheme
•Reduce the poverty of pensioners: 40% offuture pensioners will have minimumpensions!