Poland’s Constitutional Tribunal ruled yesterday that 2014’s controversial second-pillar pension reforms which saw the removal of PLN153.2bn (€36.7bn) in assets were compatible with the Polish Constitution, with the exception of the advertising ban.
The tribunal’s decision was announced following the previous two days’ hearings, when the 15-judge panel considered submissions by then-president Bronisław Komorowski and Irena Lipowicz, who was Human Rights Defender (Polish Ombudsman) at the time.
While Komorowski signed off on the Polish pension reform law on 27 December 2013, he forwarded a number of concerns to the tribunal, including the legalities of the ban on the second-pillar funds (OFEs) investing in Polish and non-Polish sovereign and state bonds, the obligation to invest in a high level of equities, and the ban on funds advertising during the three-month window when fund members chose whether to continue contributing to the second pillar.
The next decision period takes place in 2016.
Komorowski’s 40-page submission questioned whether the investment changes, converting what were once balanced funds into high-risk structures, constituted a breach of trust for the insured.
Similarly, it considered whether the removal of the earlier minimum return guarantee – with the OFE management companies compensating fund members for any shortfall from their own capital – might also be a breach of trust.
The ombudsman’s concerns focused on whether the removal of 51.5% of OFE assets – the system’s Polish sovereign bond holdings, which were cancelled to reduce the country’s debt levels and accrued rights transferred to the social security fund (ZUS) – violated the principles of a citizen’s trust in the state and that of legal non-retroactivity.
The decision is a relief for the Law and Justice (PiS) party, which comprehensively defeated the pension reform’s architect, the Civic Platform-led coalition, in October’s general election, and which would have otherwise have inherited a much higher public debt.
The PiS is, nevertheless, a party even more hostile to the second-pillar system than its predecessor.
In an interview on the Polish television news channel TVN24, Henryk Kowalczyk, widely tipped to be the new finance minister, endorsed the view of PiS leader Jarosław Kaczyński that OFEs were “the biggest fraud of the last 25 years”, designed to line the private pockets with public money rather than ensure retirement security.
However, Kowalczyk has also stressed in other interviews that the new government does not intend a mass appropriation.
One possibility is that the 16.6m Poles with funds currently accumulated in OFEs will be given a one-off opportunity to choose whether continue retaining their savings in the second pillar or move them to the first.
Another PiS policy would reverse the previous government’s increase in the retirement age to 67 years, returning it to 60 years for women and 65 years for men.
This would accelerate the ‘slider’ that incrementally transfers savings from OFEs to the social security system for those with 10 or fewer years left until retirement.
The biggest immediate financial threat to the OFEs, as well as other funds and the Warsaw Stock Exchange, is the possibility of Poland’s introducing a financial transaction tax.
The party has floated this as a money-raising alternative to an equally controversial tax on bank assets that could come into effect as early as 2016.