Polish experts critical on pensions infrastructure proposal

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POLAND - Several experts in Poland have condemned as unrealistic a proposal to invest pension contributions in infrastructure. It was tabled by the labour minister, Jolanta Fedak.

The minister recently said that Polish pension funds should allocate more to road projects in the country as and therefore reduce their exposure to the fluctuation of stock markets.

According to Fedak, investments in such infrastructure projects would deliver higher and more secure returns.

The idea launched by the minister of labour - and which has since then been called off by the prime minister - came after the recent financial turbulence in Europe and the US.

The comments were described as unrealistic by several Polish experts, who claimed they were made for pure political purposes and who argued that pension funds' allocation to capital markets has provided satisfying returns over the past months.

Andrvej Narkiewicv, principal in charge of the pension advisory services at Mercer, told IPE: "We cannot predict at this stage whether or not investments in infrastructure will provide sustainable returns as the boom in infrastructure projects previously predicted has not yet been recorded.

"Furthermore, the idea of reducing pension funds' exposure to the equity market is not viable.

"Polish pension schemes have invested as much as PLN3bn (€717.1m) in equities over the last weeks, taking advantage of low prices, at a time when the Polish capital market is providing higher returns than the returns currently recorded in other European countries."

The idea suggested by the minister of labour has also been qualified as illogical by Dariusz Stanko, external advisor to the Polish Chamber of Pension Funds.

He said: "Investing in capital markets can be seen as risky but historically this type of investments has provided an average real return of between 5% to 6% per annum.

"In addition, there is no point for Polish pension funds to sell their equity assets now as they would be deeply deflated due to the current market situation."

In January, the Polish government reiterated plans to introduce lifecycle funds in the second pillar that would see higher equity quotas in funds for younger employees, while older Polish workers would have the option to shift gradually their investments toward less risk assets such as bonds as they approach the legal retirement age.

The announcement came a few months before the government signed a law to allow parts of second-pillar contributions to be shifted to the state budget.

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