POLAND - The Polish pension reforms signed into law by the president today amount to a Ponzi scheme, the former deputy governor of the country's central bank has warned.
Speaking to IPE, Professor Krzysztof Rybinski, currently director of Vistula University in Warsaw, also said that if Polish courts ruled the reforms unlawful, he would be prepared to launch a class action suit against the government for losses incurred by pension savers.
He added that he expected to launch a website in support of the class action in the next few days, hoping to gain signatories.
Rybinski said many had already criticised the changes as such, including former judges of the court.
Under the proposals signed into law today, there will be a 5 percentage point drop in monthly salaries transferred into the country's open pension funds (OFEs), with the funds instead being diverted to the state pillar.
Rybinsky was highly critical of the legislation. "The current law, which has been signed by the president, creates in the public pension system a Ponzi scheme - or Madoff-Ponzi scheme, if you like. It's exactly the same mechanism.
"They are promising very high returns, the nominal GDP averaged over the last five years. That is an 8% interest rate paid on this individual account that would be created in the social fund."
He argued given the demographic changes occurring in Poland, such promises are unsustainable, especially with no money currently allocated to back these promises, with this eventually resulting in future governments cutting pension promises.
Rybinski, who until recently worked for Ernst & Young, was also critical of how theonce again denied polish schemes access to the overseas equity market, with a 5% cap on foreign investments kept in place.
He argued that other schemes showed that a more diversified portfolio, including global stock markets, was more likely to garner high returns over the lifetime of a scheme member.
Dariusz Stańko of the Polish Chamber of Pension Funds said that while he was unsure if reversing the pension promise was unconstitutional, the argument many supported was that it was not in the members' best interest.
He further highlighted that the reform proposals were pushed through parliament at a faster than usual pace.
"One of the opposition parties called for public hearings on the issue, but the government argued there was no need as there had been a debate," he said.
"To an extent, they are right, because there has been some discussion between the experts about this for the last year, but the consultation was pretty short - over after about one month," he said.
He added that the proposals were only sent to one committee, avoiding a social policy committee usually charged with social policy oversight.