Poland’s 10 second-pillar pension funds (OFEs) generated a weighted 12-month average loss of 14.9% as of the end of September, compared with a loss of 3.8% a year earlier, with returns ranging from -13.3% to -17.3%, according to the Polish Financial Supervision Authority.

The funds’ total net asset value fell by 16.6% year on year in Polish zloty terms to PLN128.6bn (€28.7bn). This includes a net outflow of PLN1.9bn since the start of the year as a result of the slider mechanism that incrementally transfers funds of those members with 10 or fewer years left until retirement into the first pillar Social Security Institution (ZUS).

Longer term results were also adversely affected, with the average three-year return plunging from 15.7% in September 2019 to a loss of 22.8%.

The OFEs have been tied in, since 2014, by the previous government’s decision to remove all sovereign bonds from their portfolios, converting them into (largely Polish) equity funds. Currently shares account for close to 85% of portfolios, the bulk of those Polish equities.

This concentration made the OFEs exceptionally vulnerable during the COVID-19 induced global stock market crash in March.

Between 3 March and 12 March the Warsaw Stock Exchange’s WIG20 index of the 20 biggest listed companies plunged by 31%, with the OFEs’ 12-month results, in turn, falling by 26.5% as of the end of that month.

Although still well down on January-February levels, stock prices have since made some recovery, boosted by October’s IPO of Polish e-commerce platform Allegro.eu. This was the largest IPO in Polish history, with the company now the exchange’s biggest by market capitalisation.

In the meantime, the main outcome for the OFEs has been the postponement of their liquidation, a project announced in 2016 and, after several modifications, eventually set to take place in the second half of 2020.

Under the project OFE fund members would have the choice of either transferring their assets to newly-created individual retirement accounts (IKEs) or to ZUS.

In the IKE option members would pay a 15% ‘conversion tax’, in the ZUS one personal income tax on their resulting increased first-pillar pension.

The liquidation bill passed its third reading in the Sejm (lower house) on 13 February, was rejected by the Senate (upper house) a month later, and has still not passed into law.

Since the March market crash the government has been under pressure to amend or delay the bill as both future pension incomes and government revenues would be hit by the stock price fall.

Furthermore, in current market conditions, most OFE members would be more risk averse and most likely eschew the IKE route, the default option and the government’s preference, in favour of the first pillar.

The government revealed its decision to postpone the liquidation in April in its EU Convergence Programme, the three-year budget plan non-eurozone EU members send each year to the European Commission.

It has not, however, abandoned the project. In September the Ministry of Development Funds and Regional Policy, the leading government body on the liquidation, confirmed to parliament that it has been postponed until 2021, while the bill has been returned to the cabinet for revisions and amendments.

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