Poland’s government on Wednesday (6 November) approved a transfer of all state-guaranteed private pension funds to individual retirement accounts, in a move that will add 19.3 billion zloty (€4.5 billion) to state coffers strained by hefty social handouts.
The ruling nationalist Law and Justice (PiS) party has long planned to change the system under which the assets are managed by state-guaranteed private pension funds, called OFE, many of which are owned by foreign managers such as MetLife, NN Group or Aviva.
Pension savings are a ticking time-bomb in Poland. It has one of the lowest birth rates in the European Union and faces a mounting burden of paying out state pensions to people who did not save enough under communism.
The plan approved by the government assumes that all the assets managed by OFE – a total of 155 billion zlotys – will be transferred to 15.8 million individual retirement accounts.
“Such a system will create a basis for savings for the late years of life, and will contribute to building a safe and stable pension system, and consequently increase pension payouts,” the government said, adding that one effect of the measure would be an increase in long-term savings.
Pensions will be paid out from both the private retirement accounts and from the country’s social insurance institution.
Poles’ private pension money will be transferred by default to individual retirement accounts at a 15% fee, unless workers actively express a will to move the money to state social insurer.
The government assumes that 80% of workers’ money will be transferred to private retirement accounts. According to central bank calculations, it would give the state 19.3 billion zlotys.
Analysts have said that this cash injection will help the government to balance the budget, despite hefty social handouts offered to voters before May and October 2019 elections won by the PiS. The cash injection may also help the government to scrap a plan to effectively increase pension premiums paid by high earners as of next year.
“There will be no real change for an average Pole, but the government will get money to finance 13th pension next year,” said Karol Pogorzelski, senior economist with ING Bank.
He was referring to an election campaign promise made to pensioners by the PiS earlier this year, in which the PiS vowed that if it won the parliamentary election then next year it would pay them a bonus called the 13th pension. The PiS won.
“According to government, the goal of the reform was to restore privacy to these funds, but I think that the main goal is to provide income to the budget in a short term,” said Krystian Jaworski, Crédit Agricole’s senior economist.
The government spokesman was not immediately available for comment.
Under current law, the state insurance institution collects most mandatory contributions from employees, equivalent to 19.5% of pre-tax earnings, and a smaller chunk is paid into OFE. The vast majority of the assets managed by OFE are shares in companies listed on the Warsaw Stock Exchange.