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Polish lower house stalls on pension reform

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  • Polish lower house stalls on pension reform

POLAND - The Polish parliament has stalled proposals to divert private pension contributions to the Polish state pension scheme just weeks after the Polish cabinet approved them.

The Sejm, parliament's lower house, routed the government bill to two commissions for further scrutiny following debate in the house yesterday.

However, the public finance commission - one of those charged with investigating the proposals - refused an opposition motion for a public hearing on the reforms.

Junior coalition partner PSL this week unanimously backed the proposals after an earlier announcement that it might impose party discipline on recalcitrant members of parliament.

The proposals, if passed, will mean a drop in contributions to second-pillar schemes from 7.3% to 2.3% this year, with a partial increase to 5% by 2017.

In return, tax-free contributions to a new IKZE voluntary scheme, initially designed to increase gradually from 2% to 4%, would instead start at 4% next year.

Warsaw School of Economics pensions specialist Dariusz Stańko told IPE the change was not particularly significant.

"On the one hand, it isn't going to increase voluntary savings of people with lower salaries because their knowledge is inversely related to their incomes," he said. "On the other, there have to pay the income tax at the end of the saving period so it's not so fantastic anyway."

Prime Minister Donald Tusk has meanwhile issued a broadside at the European Court of Justice review that could allow Polish pension funds to invest outside their domestic market.

In a press conference earlier this week, he claimed limiting contributions to private pension funds would "reduce the element of risk in the system", and that limiting the potential of a geographic diversification would "increase the security of Polish pensioners".

Unsurprisingly, the proposals have to date met with severe criticism both from economists and business organisations.

Lewiatan, the private sector employers' lobby, pointed out that the proposals clearly overstate the requirements for private pension funds and claimed requirements that they -  unlike the first-pillar fund - guarantee a return rate were "in breach of the constitutional principle of equality under the law".

Nomura economist Peter Attard Montalto in recent weeks suggested the ruling Civic Platform party had agreed to unpopular pension reforms to hold off more politically damaging austerity measures.  The government reckons  Poland will be to reduce its gross borrowing by PLN190bn (€46.8bn) by 2020 as a result of the reforms.

Stańko points out that the same government document shows that by 2020 the value of accounts created by converting part of the funded contribution to the unfunded pillar is expected to be around PLN226bn. In fact, as former finance vice-minister Stanislaw Gomułka has pointed out, state pension liabilities as a result of switching will be PLN226bn — representing a net loss to the state equal to some PLN31bn by 2020.

Meanwhile, a tribunal has ruled that controversial amendments that will significantly restrict eligibility for bridge pensions are, in fact, constitutional.

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