POLAND – Poland's prime minister Donald Tusk, finance minister Jacek Rostowski and minister of labour and social policy Władysław Kosiniak-Kamysz have confirmed the pensions industry's worst fears.
In June, the government unveiled a proposal with one of three options – redeeming the second-pillar fund (OFE) state bond portfolio, making the system voluntary or a voluntary system with additional contributions.
Now, the government has selected both the bond removal and an end of hitherto mandatory membership.
The payout system proposed at the time, which would see members' funds incrementally transferred 10 years before retirement to the Polish Social Insurance Institution (ZUS) sub-accounts set up in 2011 after OFE contributions were slashed, remains unchanged, with ZUS responsible for payouts from both pillars.
Tusk insisted this system would generate higher pensions than if the funds were left in the OFEs and, crucially, that the pensions would be paid out over a retiree's lifetime.
This was a pointed response to the industry's controversial proposals for payouts that would have provided a retirement income from their OFE accounts for only 15 or so years.
The Polish state and state-guaranteed bonds currently in OFE portfolios would be transferred to ZUS at their value on 31 December 2012, and then redeemed.
These account for around half the funds' portfolios, which had a total value of PLN284bn (€66.5bn) at the end of July.
The OFEs would no longer be able to invest in these securities, although they could still buy municipal bonds.
This measure, in the government's reasoning, would reduce the public debt's share of GDP by some 8 percentage points.
Rostowski added that, following changes in investment legislation, the funds would be able to invest as much as 100% of their assets in shares.
The government would also abolish the minimum return benchmark.
Other investment changes include allowing OFEs to lend stock and use derivatives.
The prime minister stressed that there would be no transfer or nationalisation of what assets remained in the portfolios, but, as he added, the government does not want to take on stock market risk.
Membership of the hitherto mandatory system will become voluntary, with workers, including existing fund members, given three months to inform ZUS personally of their decision.
As Tusk put it, citizens could choose between a guaranteed state pension accumulated in ZUS or the stock market investment "game" played by the OFEs.
The default position for those who cannot decide is ZUS, although, as critics have pointed out, many workers will have neither the time nor the patience to deal with the agency's bureaucracy to formalise the changes.
Contributions to the OFEs would be set at 2.92% of gross wages.
The original contribution of 7% was cut to 2.3% in 2011 to contain a rising budget deficit and debt.
It rose to 2.8% in 2013 and was set to increase to 3.5% by 2017.
Additionally, the government intends to halve administrative and other costs generated by both ZUS and the OFEs.
The Polish Chamber of Pension Funds (IGTE), in its initial response, described the proposals as "deeply disillusioning".
The chamber pointed out that the government, having taken no account of legal, economic or other specialist advice on alternative solutions to the problems inherent in the overall pensions system, proposed changes that would undermine the capital base of compulsory retirement savings, to the cost of all future pensioners.
It challenged the finance, and labour and social policy ministries to publicise the evidence for their assertions that diverting social security contributions to second pillar funds over the last 13 years had resulted in lower retirement pensions.
The Chamber also disagreed with the government's belief that its proposal would result in a more secure retirement system.
On the contrary, said the IGTE, forcing the pension funds to invest almost exclusively in stocks would increase their risks and prevent them from protecting the capital value of their assets during economic downturns.
The IGTE questioned the constitutional legality of the proposal to take over the OFE's state bond holdings.
In the Chamber's opinion, this plan amounted to nationalisation of assets privately owned by the pension funds.
In July, the IGTE warned it would refer the reform plans to Poland's Constitutional Tribunal.
As yet, it has not stated whether it intends to pursue this route.
The government's schedule is to have the proposals enshrined in law by the end of this year and in operation by mid-2014.