Poland’s government has approved a draft law overhauling Poland’s pension system on March 2. The reform will kick in between June and August.
In line with the proposed law, Poland will transfer an estimated PLN149bn (€32.83bn) worth of assets from the country’s private pensions funds, collectively known as OFE, to IKE individual pension accounts to be run by fund managers.
The transfer will effectively end OFE's role as one of the pillars of the Polish pension system. OFE was introduced in 1999 to boost Poles’ pensions paid out from the state pensions manager ZUS with payouts from OFE, which it was hoped would reap returns from investment, mainly in shares on the Warsaw Stock Exchange.
The plan fizzled, however. OFE funds lost some 20% in value since 2017, the financial market watchdog KNF said in October in its bi-annual analysis looking at the funds’ performance over the past three years.
The reform just approved by the government will give Poles a choice to either move their money from their OFE accounts to the individual state pension accounts known as IKEs or transfer it entirely to the state manager ZUS.
“The [proposed] solution gives a real right to choose pension based on two pillars. It [also] guarantees that savings on the IKE accounts will be private and possible to inherit,” the government said.
The transfer to IKEs will come at a cost of a fee of 15% of the assets' value, with the money going to the pool managed by ZUS, the plan assumes.
The government had plans to carry out the reform last year but the COVID-19 (coronavirus) pandemic and the resulting economic crisis forced the conservative United Right government to delay the operation.
Poland’s incumbent pensions system relies on the overarching ZUS, to which a percentage of people’s earnings is paid mandatorily. From that payment, currently a chunk must go to the OFEs, which invest the money, mostly on the Warsaw Stock Exchange – where close to 80% of assets rest now – but also in shares of foreign companies as well as corporate bonds.
ZUS is a so-called solidarity system, meaning the money paid into it now go out to fund pensions of people now retiring. That set-up is under pressure, however, because of the ageing population and low birth rate.
The proposed reform is also expected to improve Poland’s fiscal position, improving the government deficit balance.
The reform also should not have much of a negative impact on the Warsaw bourse, as IKEs will only be allowed to reduce their exposure to Polish equity by 2.5pp a year, a measure introduced to prevent sell-offs.
In 2013, the centre-right Civic Platform (PO) cabinet shifted 51% of the assets held by the funds – about PLN146bn (€35bn) – largely in the form of government bonds, to the state-run system. The move offered Warsaw a huge cut in state debt that allowed it to duck under Polish and EU limits, but it hit the equities market hard.