POLAND - The European Commission given Poland two month to ease investment restrictions for its open pension funds (OPFs) before it file proceedings against the state at the European Court of Justice.

The commission, which initiated infringement proceedings last year, said the investment limits on imposed on OPFs - the country's privately managed funds - concerning foreign assets are still in violation with EC treaty rules.

Poland allows its mandatory second pillar fund to invest only 5% of their assets abroad and the actual asset categories themselves are even more restricted in relation to foreign investments, but the EC argues this acts as a restriction to the free movement of capital.

"Moreover, foreign investment is discriminated against with regard to the calculation of management fees and transaction costs," the EC said in a statement.

The Polish authorities have been given two months to "take satisfactory steps to remedy the infringement of EU law".

Poland has argued it can cap the funds' foreign investments, because OPFs are public entities and therefore part of public finances.

According to the Commission, however, the funds are economic undertakings and thus cannot be treated as public entities, as "they are engaged in an economic activity of investing money of insured persons, regardless of their legal status and role in the pension system, and regardless of the fact that the contributions have a public character".

The EC also found the restrictions limit the possibility for OPFs to compete and diversify their investment portfolios and thus obtain better risk-adjusted financial results.

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on + 44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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