POLAND - Poland's 16 pension funds saw the asset-weighted average two-year rate of return at 26% at the end of December 2003, according to data from Poland's pension and insurance regulator KNUFE.

The rate of return ranged from 18.2% registered by the Pekao fund to 30.3% seen at Bankowy fund. The average rate for all funds slid from 38.8% at end-September 2003.

Bankowy again took the lead among Poland's pension funds but its rate of return dropped from 53.6% at the end of September. ING Nationale-Nederlanden Polska was the number two at the end of 2003 with a rate of return at 30.1%, followed by Polsat with a rate of 29.4%.

As is prescribed by Polish legislation, Poland's pension funds invest most of their funds to fixed-income securities. Up to 40% may be invested in stocks.

The Polish pension system underwent major reform in 1999, when state pension expenditures skyrocketed due to a number of policy changes expanding early retirement options and unfavourable demographic trend.

The reform is aimed at gradually replacing the current pay-as-you-go system to a partially private system. It added two pillars to the basic one providing retirement, disability and sickness insurance to all Poles.

The second pillar, which is also defined as contribution from wage, is compulsory to Polish workers born after 1969. Poles born between 1949 and 1969 can decide whether or not to participate in the new system. Poles born before 1949 remain covered by the old pay-as-you go scheme.

Contributions paid under this second pillar scheme are transferred to the Social Security Office (ZUS) and then further to one of the private pension funds.

The third pillar, also introduced in 1999, is voluntary and enables employers to provide supplementary pensions to employees.

In 2003, Poles transferred over 10 billion zlotys (2.1 billion euros) to private pension funds.

PJC

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