POLAND – The Polish pensions industry is battling to save the second-pillar system from near extinction.
A report in June by the Finance, Labour and Social Policy Ministries on the future of the second pillar, out for consultation until the end of August, would entrust payouts to the Polish Social Insurance Institution (ZUS), with assets currently accumulated in open pension funds (OFEs) shifted incrementally 10 years before retirement.
Meanwhile, the OFEs themselves would be transformed into structures banned from investing in state bonds, voluntary funds or voluntary funds with additional contributions from members.
The industry was not consulted in the run-up to the report or a formal consultee in the current discussions, unlike the employer and employee member organisations of Poland’s industrial relations Tripartite Commission.
It was only finally invited to air its views formally on 22 July at a two-hour debate organised by the Labour and Social Policy Ministry.
According to Małgorzata Rusewicz, acting president of the Polish Chamber of Pension Funds (IGTE), 19 participants had five minutes each to speak.
Rusewicz agreed with the need for modernising the current system, but not with the proposed solutions.
“We do honestly understand the financial problems, but we don’t want to participate in changes that will, in fact, liquidate the second pillar and are against the interests of pensioners,” she told IPE.
One of the points of the report, which the IGTE described as “false and dishonestly presented”, is the assumption that the proposed changes will lead to higher pensions independent of any demographic trends.
These trends are in any case highly unfavourable, with most projections suggesting the worker/pensioner rate of 4:1 would halve by 2040.
The IGTE has also accused the report of making “gross methodological errors” in its comparison between OFE return rates and the supposedly superior ones generated by ZUS and other benchmarks, such as bank deposits, investment funds and GDP growth.
It described the voluntary proposals as a “forced choice”, while the exclusion of state bonds from OFE portfolios, forcing them to focus on equity and corporate bonds, was viewed as a massive risk for members.
“We would have no possibility under this scenario of diversifying portfolios,” Rusewicz told IPE.
Earlier, the chamber warned that, should any of the options as laid out in the report be accepted finally, it would refer the matter to the Constitutional Tribunal.
The constitutional issues up for challenge, according to papers from the Krakow-based Allerhand Institute research centre, include the opinion that the funds have private attributes, and personally belong to individual members – not to ZUS – while the OFEs have legal status, with their ownership rights protected under the European Convention on Human Rights, and the Charter of Fundamental Rights of the EU.
According to the papers, both the proposed payout system and the three options for the second pillar’s continuation threaten those property rights, amount to an act of nationalisation and raise the risk of foreign investors bringing claims for compensation against the Polish Republic.
Rusewicz told IPE the IGTE hopes to meet the report’s authors in mid-August to discuss alternative solutions.
One existing template is a report drafted by chief prime ministerial adviser Michał Boni in 2010 that recommends sub-funds of different risk.
The Polish Financial Supervision Authority, among others, endorsed this report.
Meanwhile the government itself appears divided over the outcome.
In mid-July, finance minister Jacek Rostowski – whose primary objective to reduce Poland’s budget and deficit – stated that “liquidation” of the pension funds could not be ruled out, directly contradicting prime minister Donald Tusk’s earlier promise and leading to a subsequent denial from the labour and social policy minister Władysław Kosiniak-Kamysz, whose remit includes the pensions system.