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Current issues in the Polish pension fund market

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The Private Pensions Day, 5th edition Sinaia, 27th May 2010 Current issues in the Polish pension fund market Dariusz Sta ko Warsaw School of Economics – PowerPoint PPT presentation

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Title: Current issues in the Polish pension fund market


1
Current issues in the Polish pension fund market
The Private Pensions Day, 5th editionSinaia,
27th May 2010
  • Dariusz Stanko
  • Warsaw School of Economics

2
Plan of the presentation
  • Pension system in Poland
  • Polish pension funds market
  • Current situation
  • Recent government proposals (mainly Ministry of
    Labour and Social Policy)
  • Polish Chamber of Pension Funds (IGTE) actions
  • Conclusions

3
1. Polish Pension System
  • new pension system introduced in 1999 (4
    Reforms pensions, health-care, administration,
    education)
  • main element of old-age protection framework
  • covers 14 mln people
  • does not cover soldiers, prosecutors, miners,
    police etc. (non-contributory system)
  • does not cover farmers (Pension Fund in KRUS -
    The Agricultural Social Insurance Fund)
  • age brackets in 1999
  • below 30 mandatory pillars I and II
  • 30-50 pillar I or split between I and II
  • over 50 stay in the old system

4
1. Polish Pension System
  • 1 pillar NDC PAYG managed by Social Insurance
    Institution (ZUS), mandatory, 12,22 gross wage
  • 2 pillar DC FF managed by Pension Fund Societies
    (PTEs), mandatory, 7,3 gross wage
  • 3 pillar DC FF, voluntary, some incentives
  • individual retirement accounts (IKEs) life
    insurance with investment fund, bank account,
    investment fund or brokerage account
  • corporate pension plans (PPEs) group life
    insurance with investment fund, corporate pension
    fund, investment fund or foreign provider

5
2. Polish Pension Funds marketas of end of Apr
2010
  • 14 OFEs, rules similar to Romania
  • over 14,56 m members
  • AuM 195,5 b PLN ? 47,4 bn euro

6
2. Polish Pension Funds market
7
2. Polish Pension Funds market
8
2. Polish Pension Funds Market
  • returns
  • since September 1999 until end of April 2010
  • total nominal return 195,0
  • total real return 106,4
  • average nominal return 10,68 p.a.
  • average real return 7,03 p.a.

9
2. Polish Pension Funds Market
Performance of OFE funds vs NDC system (ZUS)
blue indexation in ZUS (NDC system) red
market share weighted average of OFEs (FDC
system)
Source Soldek, Andrzej (2010). Jak OFE zarzadza
naszymi skladkami How OFE manage our
contributions, PTE PZU S.A., presentation for
the KPP conference of 4 February 2010, Warsaw.
10
2. Polish Pension Funds Market
  • up-front fee 3,5
  • before 2004 no legal ceilings, loyalty schemes
  • 2004 ceiling on 7 with gradual decrease towards
    3,5 by 2014
  • 2010 ceiling brought down to 3,5 (incl. ZUS
    0,8)
  • management fee month
  • switchover fee (in cash)
  • 160 PLN (if lt 1 year),
  • 80 PLN (if lt2 years but gt 1 year),
  • 0 PLN (if gt 2 years)

plus max. 0,005 AuM (per month)
11
3. Current situation
  • public annoyance financial crises losses in 2008
    yet PTEs earned 586 m PLN in 2008 and 640 m PLN
    in 2009 as management fees
  • search for money (use of Demographic Reserve
    Fund)
  • political action towards reduction of
    contributions
  • KRUS (agricultural system)
  • Eurostat problem classification of funded
    savings
  • questioning the sense of the pension reform
  • roulette of the capital market (professor of
    the leading economic school)
  • When I am to choose between the interests of 14
    PTEs and the interests of 14 fund members, I
    shall choose the latter (Minister of Labour and
    Social Policy)
  • vagaries of the financial market (Ministry of
    Labour and Social Policy, justification to the
    proposal of pension law amendment)

12
4. Government proposals
  • to cut the funded contribution from 7 to 3
  • to allow OFE members aged 65 and above to
    withdraw pension savings in a lump sum or in
    instalments (up to 10 years)
  • full OFE account if pension entitlements
    accumulated in ZUS grant them 200 of minimal
    pension or
  • part of the OFE account another part goes to ZUS
    to co-fund the above condition, the rest
  • to allow OFE members at 5 years to retirement to
    move part or all of their savings to ZUS
  • to create a ZUS-like state annuity provider
  • to make the OFE voluntary
  • to introduce the Canadian system
  • contribution 120 PLN ? pension 1 200 PLN

13
5. IGTE actions
  • media and information campaign
  • telephone polls amongst the OFE members
  • 1/5 knows the issue, 43 knows something
  • 22 are for or somehow for reduction of the
    contribution, 59 are against or strongly
    against
  • 75 believe this is a stick-up note action of
    the government to get quick cash
  • 52 believe OFE are rather or definitely more
    efficient than ZUS
  • open letter to the Prime Minister
  • legal analyses (unconstitutionality of the
    proposals)
  • proposals of investment law improvements,
    multifunds system, external benchmark and high
    watermark fee system, improvement of acquisition
    system

14
6. Conclusions
  • increasing political risk to funded systems
  • Argentina (nationalization)
  • Slovakia (return guarantees, fee cuts, opt-outs,
    voluntary participation)
  • Poland (FRD case, fee cuts, current proposals)
  • fighting populism requires investing in pension
    education
  • media
  • population
  • message about demography should be made widely
    heard
  • better co-operation of pension associations?
  • Eurostat story will keep EU-12 from revealing
    their pension debts
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