The creation of a system allowing the paying Polish private sector pensions has come a step closer with the submission of two bills by the ministry of labour and social policy for government approval.

Although Poland's mandatory pensions system was introduced in 1999 and payments into the funds have been made since then, successive governments had neglected to pass into law a method of how pensions would be paid.

The issue was recognised as urgent by the government that took office after last October's general election because the first payments are due to be made next year.

"We need detailed rules on what, how and who will eventually pay out of the capital accumulated in individual accounts," Marek Góra, a professor at the Warsaw School of Economics and one of the godfathers of the pension reform, told IPE shortly after the new government took office. "I think there is still enough time but only if we give this legislation absolute priority. It should be passed by parliament, signed by the president and all procedural issues completed by March at the latest."

The two bills, on funded pensions allowing for programmed withdrawal and annuities and on annuity providers, went to the cabinet for approval at the end of last month. If approved they will be submitted to parliament.  

The proposed legislation foresees the introduction of two products, a programmed-withdrawal product and a single life annuity product for people aged over 65. The ministry rejected proposals for a joint life product. The draft bills also lay down the process for the payment of a survivor pension.

Initially the payments will be made by the existing mandatory open pension funds (OFEs) but the government's intention is that separate private sector annuity companies will emerge. Legislation is at the consultation phase to establish special annuity providers. It is anticipated that the joint stock companies will be in place within the next five years.

The ministry is also preparing legislation to allow the pension asset management companies (PTEs) that manage the OFEs to offer multifunds. Currently they have no ability to offer funds with differing risk profiles as are seen in other east and central countries that have pensions systems similar to that in Poland.

The possibility to create multifunds exists in previous legislation where it was mentioned as a step to be decided in the future.

A new impetus to taking the pension reform further follows the appointment of Agnieszka Chlon-Dominczak as vice-minister in charge of pensions at the ministry of labour and social policy in February. Chlon, a graduate of the Warsaw School of Economics who also studied at Oxford, is seen as a reformer. 

The ministry of labour and social policy has also opened talks with the trade unions on ways of encouraging older workers to stay in the labour market. The initiative is considered to be one of the new government's priorities. Its proposals would see the introduction of so-called bridge pensions that would be paid to people born between 1949 and 1968 and who currently have the right to early retirement. The sum, which would not be less than the minimum pension, would be paid jointly by the government and the employers in the affected sectors.

The government's proposals also include the discouragement of early retirement by cutting payments to the 1.3m people who are estimated to have the right to retire early under current regulations and it wants to redefine the criteria for early retirement to emphasise medical factors, and to redraft a list of professions entitled to early retirement to those involving hard physical labour. Currently the list includes nurses, doctors and teachers.

In theory the men retire at 65 and women at 60 but the government estimates that on average men effectively leave the labour market at 58 and women at 56.

The government's so-called 50+ programme would offer a package of measures including retaining in an attempt to make fiscal saving of PLN16bn (€4.7bn) to 2015.

As well as reducing making the pensions sector more sustainable, the measure is also seen as a way to alleviate the labour shortages and inflation that have accompanied Poland's sustained GDP growth.