Poland’s current pension review is nearing the end of its consultation period, with the final decision postponed from the end of this year to the first quarter of 2017.

According to the Social Dialogue Council – the co-operation forum between employers, trade unions, government officials and representatives from the presidential office, central bank and national statistical office – the most likely outcome is that three-quarters of the assets of the second-pillar pension funds (OFEs) will be transferred to newly created third-pillar accounts, and the remainder to the Demographic Reserve Fund (FRD).

This plan was co-authored by finance and development minister Mateusz Morawiecki and colleagues in the FRD and the Ministry of Family, Labour & Social Policy (MRPiPS).

The new accounts would be run as investment funds (TFIs) and in the first two years managed by the FRD’s own TFI.

Thereafter, they will be managed by the private sector, while the second-pillar fund management companies will themselves be transformed into TFIs.

The alternative proposal, a full-scale transfer of all OFE assets into the FRD, is the preferred option of, among others, the state Social Insurance Institution ZUS, OPZZ (one of the two biggest trade union confederations) and reportedly sectors within the MRPiPS itself.

It remains in play because of suspicions that the Law and Justice (PiS) government could be forced into tapping into pension assets to keep its budget and public debt deficits within EU limits, just as its predecessor did when it removed all state bonds from OFE portfolios in 2014, and continue funding its flagship projects, notably the 500-plus child-benefit programme, and next year’s reversal of the previous government’s raising of the retirement age.

Poland’s 2017 budget remains just within the deficit thresholds only if GDP grows by 3.6% year on year, and inflation does not exceed 1.3%, two targets seen as highly optimistic.

The full nationalisation of OFE assets is the nightmare scenario for Poland’s capital markets.

Earlier in December, Poland’s Chamber of Brokerage Houses (IDM) wrote to the government spelling out the catastrophic consequences for the Warsaw Stock Exchange (WSE), Polish companies’ access to finance, foreign investment and the overall economy.

The document points out that the OFEs have shareholdings in more than 250 WSE-listed stocks and account for more than 20% of the exchange’s market capitalisation and 43% of the free float.

In the case of the free float, a nationalisation would lead to an automatic offload of Polish assets by passively indexed ETFs, followed by sell-offs by remaining foreign investors, and a liquidity drainage and eventual marginalisation of what is the CEE region’s biggest stock exchange.