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.