POLAND – The Polish Chamber of Pension Funds (IGTE) has urged the government not to "infringe" on the existing social contract by nationalising pots of those close to retirement and instead called on it to start a debate on how best to protect the system's savings.
The association's invitation, extended during a press conference yesterday, follows persistent speculation that the government was planning an effective nationalisation of assets held within the country's mandatory second pillar funds (OFEs), worth PLN268.9bn (€65bn). The suggestion has been fiercely denied by Jacek Rostowski, the country's finance minister.
In an open letter to labour and social policy minister Wladyslaw Kosiniak-Kamysz the IGTE stressed the superior investment performance of OFEs compared to bank deposits and other savings vehicles. It said OFEs had achieved an average annual return of 6.5% since 1999, when the second pillar was created.
The letter also emphasised the role the second pillar had played in funding privatised industries and infrastructure projects in Poland, thereby creating hundreds of thousands of new jobs.
Press reports have said the government intends to cancel some of the PLN120bn of government debt held by the funds, moving the private pension savings of those members who are within ten years of retirement into a so-called conservative fund run by the state-owned Social Insurance Institution (ZUS).
In spite of repeated denials by Rostowski, many commentators believe the government will still attempt to access some of the assets, due to the need to reduce its deficit in line with the European Union's excessive deficit procedures.
The IGTE's open letter said: "With the arrival of OFEs allowing pension contributions to be multiplied in value until members retire, the social contract has been agreed.
"Changes in the system which we are now hearing about are a step towards infringing this agreement.”
The letter noted that moving the savings of those ten years away from retirement to ZUS meant that real savings would be used to pay current social security obligations, instead of funding a pension for the individual who had saved them over the years.
As the country's dependency ratio shifted in favour of pensioners, more and more money would therefore have to be paid to the ZUS from the second pillar, the letter continued.
"Given the risk that in a few years, the first pillar may become insolvent, enabling retirement income to come from several sources significantly increases the security of future retirees," the letter said.
It also emphasised that each management company (PTE) was legally obliged to act in the interests of its members, who are also members of the state pension system.
Although no specific proposals were included in the letter, IGTE chairman Wojciech Nagel recently outlined how the organisation thought the second pillar should structure drawdowns – a matter of some urgency, as the government needs to legislate for the payout phase before the first workers retire in mid-2014.
Savers in OFEs should be able to use their pension pots to buy term annuities, rather than receive a lower lifetime income, the association said. Those retiring would be able to choose the term over which the pension would be paid. In addition, they would receive a minimum state pension.
Nagel also said there should be some kind of guarantee to return part of the capital, if members died within a specified period after retiring.
However, the proposal has met with criticism from the government and from some industry experts.
Wojciech Otto, professor of economics at the University of Warsaw said: "The IGTE proposal seems to be for phased withdrawal without longevity coverage, but I don't understand why they have suggested this, as it's generally not a good idea."
Otto has been working with fellow academic Marian Wiśniewski, head of Warsaw's Department of Economic Sciences, on alternative proposals for the second pillar system, one relating to the accumulation phase and the other, with support from Aviva PTE, to the payout phase.
The design for a payout model includes the provision of a life annuity, with an option for term withdrawal along with entitlement to a bequest, for part of the pension pot.
The model also proposes setting up a buffering fund to absorb a substantial part of the volatility of investment returns, and to follow the deviations of the actual mortality rates from assumed life tables.