POLAND – Poland's pension industry expect the country's government to nationalise part of its private pension schemes, despite denials from finance minister Jacek Rostowski.
Rostowski, who is also Poland's deputy prime minister, issued the denial after reports surfaced in the national press that the option of nationalisation was being considered, with proposals reported to cancel some of the PLN120bn (€28.6bn) of government debt held by the funds.
Industry experts nonetheless see the move as likely, given the need to reduce the government deficit in line with the European Union's excessive deficit procedures.
Dariusz Stańko, assistant professor at Warsaw School of Economics' Department of Social Insurance told IPE: "He's [Rostowski] denying he wants to liquidate private pension funds, but he's stopped denying that he wants to create a so-called 'conservative fund', which boils down to removing part of the money from the funded pillar."
Rostowski has reportedly proposed that the private pensions savings of those members who are within ten years of retirement should be moved to a so-called conservative fund run by the state-owned Social Insurance Institution (ZUS).
This would allow the government to cancel a portion of the PLN126bn held within private pension funds (OFEs), in exchange for taking on liabilities which would not fall due for up to ten years.
Poland's first pillar pension scheme is run on a notional defined contribution (NDC) basis, and is complemented by mandatory private accounts, OFEs, run as DC schemes by 14 companies (PTEs) including Aviva, AEGON and Generali.
The OFEs were initially funded by a 7.3% deduction from individual employees' salaries, but after May 2011 this amount was cut to just 2.3%.
The contribution has since risen to 2.8% this year and – as stipulated by law – will be gradually increased to 3.1% in 2014 and 3.3% in 2015, until reaching 3.5% in 2017.
"The problem is that the government is still fighting debt," said Stańko. "When the system was privatised, a percentage of contributions received by the government was shifted to the private schemes, but the government is still funding pensions from the previous system which are still in payment, and this has raised the government deficit."
Stańko, previously an advisor to the Polish Chamber of Pension Funds, said that successive governments failed to take appropriate action early enough to rein in public debt, which in 2012 had risen to around 55% of GDP.
But he said that Poland's own laws on its economic management would force the government to take drastic steps if the debt grew further.
"The finance minister is trying to find money and the private pension system is a handy mechanism to cover the deficit," he said.
"However, unlike Chile, we don't have any rights enshrined in the constitution to say the money must be repaid to savers."
Hungary effectively nationalised its private pension system in 2010 in an effort to reduce its budget deficit. The World Bank's chief economist Heinz Rudolph previously said that the economic downturn triggered by the financial crisis was "too big" for the the second pillars established in a number of Central and Eastern European countries to survive unscathed.
And Stańko warned that if Poland were to do likewise, it would not be the last government in Eastern Europe to do so.
"We have the biggest pot of pension money in this part of Europe and are perceived to be leaders in the sector," he said.
"If we go ahead with this, other countries will follow."