POLAND - The International Monetary Fund (IMF) has warned Poland that the shift of assets from the second pillar of its pension system should not lead to increased spending.
In its latest country assessment, the IMF said: “The shift of some private pension contributions to the public system will improve government debt dynamics, but should not be allowed to facilitate higher spending or tax reductions that could weaken long-term fiscal sustainability.”
Despite criticism from some experts, the Polish president signed a law in April to allow parts of second-pillar contributions to be shifted to the state budget.
The IMF lauded Poland’s fiscal consolidation plans, but it also warned that the siphoning off of pension money could not continue, “given the long-term decline in replacement ratios”.
To solve this problem, the IMF recommended either “strengthening the target for the fiscal balance” or “increasing contributions to the second pillar once fiscal space allows”.
It argued that a funded second pillar was “potentially beneficial from international risk-diversification and capital-market development perspectives”.
However, the question of loosening investment regulations for Polish pension funds (OFE), which are so far only allowed to invest 5% in foreign equities, has not yet been resolved.
In January, the government had reiterated plans to introduce lifecycle funds in the second pillar that would see higher equity quotas in funds for younger employees.
But the plans have not been detailed.
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