mast image

Special Report

Impact investing

Sections

Contributions to Polish second-pillar system to shrink dramatically

Related images

  • Castle Square in Warsaw, Poland

Tags

Related Categories

Contributions to Poland’s second-pillar pension system are set to shrink dramatically as the majority of workers have elected to direct their future open pension fund (OFE) contributions to the Polish Social Insurance Institution (ZUS).

As of 31 July, an estimated 1.7m-1.8m members had opted into the second pillar.

The Polish reforms, signed into law this January, turned the former mandatory second pillar into a voluntary one.

While the decision period started on 1 April, most left it till the last minute, with the number signing up on the last day not far below the April-June total.

<

The last-minute rush led to technical problems at ZUS offices, the institution’s website and the electronic portal, with many offices extending their opening hours that day.

Postal declarations that trickle in subsequently, including those from Poles abroad, will be counted if the Polish postal registration date is no later than end-July.

With the choice restricted to the 14m-odd workers with more than 10 years left till retirement, the share equates to around 12%, well below the 20% predicted by the Finance Ministry.

In terms of the actual share of contributions, the figure could reach 15-17%, said Paweł Cymcyk, investment communication manager at ING IM Poland, as the higher paid have been more likely to choose the second pillar than low-waged workers.

Given that some 16.7m members were this year contributing 2.92% of their gross wages, the loss of inflows will be considerable.

In the first six months of 2014 alone, according to the Polish Financial Supervision Authority (KNF), contributions totalled PLN6bn (€1.5bn), boosting OFE net assets to PLN153bn.

Following the removal of all Polish state and state-guaranteed bonds this February, when net assets fell by 48% over the month, the next asset shrinkage starts in October.

Under the so-called ‘slider’, the funds have to transfer the relevant proportion of all the assets of members with 10 or fewer years left until retirement to ZUS, which under the new law takes responsibility for second-pillar, as well as first-pillar, payouts.

ZUS president Zbigniew Derdziuk told Polish radio that some PLN4.2bn would flow into the first pillar this year.

As a result, the funds will have to ensure they have sufficient liquid assets such as cash to meet their obligations, mainly at the expense of their equity holdings.

This development does not bode well for the Warsaw Stock Exchange, where pension funds account for a significant share of turnover and capitalisation.

Small-cap stocks are particularly at risk because of their low turnover, said Cymcyk.

“If there is a significant small-cap sell-off, their prices will go down,” he warned.

The next decision window is in 2016, and every four years thereafter, by which time it is unlikely many of the 12 OFEs will be around.

“We predict around half that number through mergers and acquisitions,” Cymcyk told IPE.

As he explained, with no way to increase assets, only the bigger ones, with their economies of scale, would be able to generate the profits and the results to keep their clients.

Readers' comments (2)

  • Of course, this also solves most of the problems caused by there yet being no rules governing annuitisation of the second pillar.

    Unsuitable or offensive? Report this comment

  • Actually we do have annuitisation rules - all goes back to the PAYG in a process that starts 10 years prior to retirement. So even those who remained in second pillar, will have their assets transferred to ZUS before retirement. Funding is only for savings period.... The same change....

    Unsuitable or offensive? Report this comment

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2548

    Asset class: Fixed Income, Emerging Market Debt Hard Currency (Active).
    Asset region: Emerging Markets.
    Size: CHF 300-400m.
    Closing date: 2019-07-30.

  • QN-2549

    Asset class: Fixed Income, Emerging Market Debt Hard Currency (Passive or Passive Enhanced).
    Asset region: Emerging Markets.
    Size: CHF 300-700m.
    Closing date: 2019-07-30.

  • QN-2550

    Asset class: Fixed Income, Emerging Market Debt Local Currency (Active).
    Asset region: Emerging Markets.
    Size: CHF 250-350m.
    Closing date: 2019-07-31.

  • QN-2551

    Asset class: Fixed Income, Emerging Market Debt Local Currency (Passive or Passive Enhanced).
    Asset region: Emerging Markets.
    Size: CHF 250-350m.
    Closing date: 2019-07-31.

  • QN-2552

    Asset class: Fixed Income, High Yield (Active).
    Asset region: High Yield (US).
    Size: CHF 500-600m.
    Closing date: 2019-07-29.

  • QN-2553

    Asset class: Fixed Income, High Yield (Passive or Passive Enhanced).
    Asset region: High Yield (US).
    Size: CHF 500-1'100m.
    Closing date: 2019-07-29.

  • QN-2554

    Asset class: Global Real Estate (Equity, unlisted Funds).
    Asset region: World (ex-Switzerland).
    Size: CHF 200 mn (potential for further growth).
    Closing date: 2019-08-07.

  • QN-2555

    Asset class: Real Estate.
    Asset region: European.
    Size: EUR 50 - 100 million.
    Closing date: 2019-07-22.

  • QN-2556

    Asset class: FX Hedging.
    Asset region: Global.
    Size: Mandate size of CHF 1.5 bn.
    Closing date: 2019-08-09.

  • QN-2557

    Asset class: All/large Cap Equities.
    Asset region: China A-shares.
    Size: Unit linked platform (0m USD in initial investment).
    Closing date: 2019-08-01.

Begin Your Search Here
<