POLAND - The overhaul of Poland's second-pillar pensions system, the most radical revision since its inception in 1999, cleared its final legal obstacle on 7 April, after president Bronislaw Komorowski signed off the government's controversial bill into law.
Under the new law, contributions to open pension funds (OFEs) will be scaled back from 7.3% of gross wages to 2.3%, with the remainder transferred to individual accounts managed by the Social Insurance Institution (ZUS), with a return indexed to the average of the previous five years' nominal GDP growth (not counting falls in GDP).
This arrangement kicks in on 1 May and lasts for two years, after which the OFE portion rises gradually, to 3.5% by 2017.
In the interim, growth of pension funds will slow markedly. In the first three months of 2011, contributions alone amounted to PLN6.4bn (€1.6bn), bringing the total net assets of the 15m-odd membership to some €58bn.
The new law has made some changes in second-pillar investment levels, notably an incremental rise in equity limits from 40% to 42.5% in 2011 and 62% by 2020, but it has not lifted the contentious 5% cap on foreign investments, which prime minister Donald Tusk described as essential for maintaining the stability and security of the system.
The law introduces a new voluntary savings vehicle, the Individual Pension Insurance Account (IKZE), into which savers can contribute an additional 4% of gross wages tax free.
Savers can either add these to their existing OFE account or have them managed by banks, insurance companies, brokerages or investment companies.
The new law also bans, as of May, transfer fees levied on savers switching between OFEs and, as of 2012, the use of sales agents by pension companies.
Poland's deteriorating public finances back in late 2010 drove the changes. The budget deficit is estimated at 7.9% of GDP for 2010.
The government - a coalition between the centre-right Civic Platform (PO) and the agrarian Polish Peasants Party (PSL) - wants it down to the 3% level for euro adoption by 2013.
The deficit, in turn, increased the country's public debt, which in 2010 was approaching the constitutional limit of 55% of GDP, above which the government is legally obliged to institute pension freezes and other public sector cuts.
Since OFE contributions counted as public spending, the second-pillar system was an easy target for deficit reduction, as has been the case in the Baltic states and, at its most extreme, in Hungary, which effectively nationalised its second pillar system last year.
The government estimates that, by 2020, the reforms will have reduced Poland's debt obligations by PLN190bn (€48bn).
The bill encountered relatively few obstacles in the Sejm (lower house of parliament) and was passed unchanged by the Senate (upper house), albeit with a PO senator resigning from his party in protest.
Taking into account the government's urgency in getting the bill onto the statute books by 1 May to start the deficit reduction process, the presidential website acknowledged on 7 April that the decision to write the changes into law was a difficult one and not one taken lightly.
The statement notes that the president met with the many players and social partners, and took legal advice on the law's compliance with the constitution.
Last minute appeals to the president against the law included Jerzy Stepien, former president of Poland's Constitutional Tribunal (Constitutional Court). In the end, Komorowski took the view that the new pensions system breached neither the constitution nor future pensioners' human rights.
Komorowski also considered that the changes would in no way undermine the retirement security of either those currently insured under the second pillar or future pensioners.