Security Through Diversity 1 POLISH PENSION REFORM Presenter: Dariusz Stańko Ministry of Labour and...

SecurityThroughDiversity

1

POLISH PENSION REFORM

Presenter: Dariusz Stańko

Ministry of Labour and Social Policy


2

1. STRENGTHENING THE LINK BETWEEN

CONTRIBUTIONS AND BENEFITS: POLISH

NDC (FIRST) PILLAR


3

Why NDC in Poland ? High pension expenditure due to:

Relatively generous pension formula • on average 80% replacemet rate• little link between earnings history and pension

level Early retirement

• wide-spread early retirement privileges• average retirement age: 55 for women, 59 for

men• virtually no incentives to postpone retirement

Public preferences: pension should be linked to paid contributions

Long-term outlook: population ageing, thus need to prolong working

lives and increase retirement age


4Mandatory Social Security System

New systemArchitecture

NDC

PAYGmandatory,administered by thepublic institution,individual accounts

First Tier

Open Pension Funds

Fundedmandatory,administered by privateinstitutions,individual accounts

Second Tier

Savings and additional insurance

Fundedvoluntary,administered privately,individual accounts

Third Tier


5

Design of the new pension system in

Poland (1) New Polish pension

system is: defined contribution with two accounts: non-

financial and financial

The old-age contribution was divided into: NDC 12.22% of

wage FDC 7.3% of wage

Rates of return: In the NDC are linked to

the wage fund growth In the FDC depend on

the financial market returns

Persons below 30 (in 1999) have both NDC and FDC accounts

Persons aged 30 to 50 had a choice of one (NDC) or two (NDC+FDC) accounts 53% of them chose

to have two accounts

Persons over 50 years of age stay in the old system

Source: Polish Chamber of Pension Funds


6

Design of the new pension system in Poland: Close link between

contributions and pensions: Shorter working lives Lower wagesResult in lower pension

savings

Promotes: Longer working lives Higher earnings


7

Notional Capital

Pension

Average Life Expectancy at the

retirement age

=

First Tier

NDC Pensions

Employment

Self-employment

Unemployment

Maternity and child-care

Army service

unisex life tables


8

For people who were working before the introduction of reform, an initial capital is calculated according to the following rule:

Initial Capital

(NDC)

Hypothetical old-age pensioncalculated

according to the old system rules as of December

31, 1998

Average Life Expectancy

Unisex at age 62(209 months)

= *

First Tier

Initial Capital


9

First Tier

Demographic Reserve Fund

Created in 2002. Year 2009 – an extension?

Funded part of the public tier (currently 0,4% of NDC pension contributions)

Accumulates surplus in order to finance upcoming deficit

Allows to adjust to demographic fluctuations

Reduces dependency on the state budget Since recently – equity part; passive

investment


10

FRD (Demographic Reserve Fund):

Investment limits

Asset class RestrictionSecurities issued by the state treasury (government bonds)

Max. 100%

Securities issued by the City of Warsaw or other local administration communities (municipal bonds)

Max. 20%

Debt securities guaranteed by the state treasury

Max. 80%

Public listed equity1 Max. 30%

Secured listed bonds1 Max. 20%

Bonds issued by public companies1 Max. 5%

Note: 1 Combined maximum of 40%.Source: Ordinance of the Minister of Economy, Labour and Social Policy concerning the investment of DRF resources (January 24th 2003).


11

Asset allocation of FRD

Year Stocks BondsTreasury

Bills Deposits

Dec 04 2,1% 97,9% 0,0% 0,0%

Dec 05 20,1% 79,8% 0,0% 0,1%

Sep 06 28,8% 58,7% 5,7% 6,8%


12

FRD: Investment strategy Passive investment for stock portfolio Replication of WIG, monthly purchases

low investment costs (0,06% of average assets) reduction of systematic risk

List of stocks kept changing each month: weights of companies in WIG index are variable, structure of WIG subject to periodic

modifications, turnover for some companies comprising first

30 companies with the biggest shares in WIG were not sufficient for investing in them resources of FRD.


13

Performance of FRD1 Jan 2005 – 30 Sep 2006, stock portfolio

0%

10%

20%

30%

40%

50%

60%

70%

80%

Source: ZUS.


14

Performance of FRD

1 Jan 2005 – 30 Sep 2006, bond

portfolio

0%

2%

4%

6%

8%

10%

12%

14%

Source: ZUS.


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2. TREATMENT OF SPECIAL PRIVILEGES

FOR CERTAIN OCCUPATIONS


16

Earlier retirement (I)Only in the old pension system (but miners are

exception):

Jobs with unhealthy or special conditions or requiring special abilities. Applicable to workers born before 1 Jan 1949 and workers who fulfil those conditions before the end 2008:

- f: @ 55 yrs old – 30 contributory and non-contributory years or

@ 55 yrs old – 20 years of contributions and unfit to work- m: @ 60 yrs old – 25 years of contributions and unfit to work

Also, those born before 1 Jan 1949 can retire earlier – before 60 years old (women) and 65 (men) if their rights come from separate regulations: war disabled, war heroes, civil workers, forced mine workers during the II WW, disabled due to work accidents, working in special conditions etc.


17

Earlier retirement (II)Only in the old pension system (but miners are

exception):

Early retirement despite of age:teachers born before 1 Jan 1949 with

30 yrs work experience, 20 years must be in special conditions etc.

railway workers (f55, m60)parliament and upper house

members, who till the end of 31 Dec 1997 had met conditions for earlier retirement, i.e. 30 years’ contribution period for women and 40 – for men,

Carers of children with special needs


18

Increase in early retirement provision is accompanied with drop in employment rate of older workers

Rising inactivity rate of people 55+ does not correspond to rising employment of younger workers

0

10

20

30

40

50

60

70

80

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Employmetr rate (15-24) Inactivity rate(55-64)

0

200

400

600

800

1000

1200

1400

1600

1800

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

w t

ys. o

sób

20

22

24

26

28

30

32

34

36

w p

roc.

Pre-retirement benefits Pre-retirement allowancesPensions below retirement age Employment rate 55-64


19

3. Separation of social assistance from social

insurance


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Minimum pension guarantee Topping up pensions to the level defined by the

law: Due to the indexation mechanism, relation

between minimum pension and average wage is likely to fall

Since it adds to joined benefits from the first and the second pillar, possible solutions in the funded pillar affect the probability and value of potential payout (option):

- minimal required rate of return- investment limits- payout options (programmed withdrawal)

etc...


21

Minimal benefits from social insurance

as of 1 March 2006

Requirements: m : 65 yrs old and 25 years of contributory and non-

contributory periods f: 60 yrs old and 20 years of contributory and non-

contributory periods

Current value of benefits (from March 2008): minimal pension, minimal total disability pension,

minimal survivor pension 636,29 PLN minimal partial disability pension 459,57 PLN

Exchange rates: 1 PLN = approx. 2,4 USD; approx. 3,6 euro


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4. Impact of reforms on labor costs


23

New system

Contributions

Contribution is paid by employee and employer: old-age: 50% employee, 50% employer disability: 50% employee, 50% employer sickness: 100% employee work injury: 100% employer (0,67% - 3,6% according to risk level)

6,00%

2,45%

1,93%

12,22%

7,30%

19,52%

Disability Sickness Work injury PAYG Funded


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Pension system

Projections for the future - no reform Pension expenditure would increase:

from 11% of GDP in 2000 to 17.3% in 2050

By the same time, the number of pensioners would double from 7 million in 2000 to almost 15 million in

2050, of which:• more than 10 million old-age pensioners

Total pension deficit would exceed 7% of GDP

Based on Social Budget Model, the Gdansk Institute for Market Economics


25

Population structure in Poland

Source: GUS

2002 2030

400 300 200 100 0 100 200 300 400

0

10

20

30

40

50

60

70

80

90

100+

ths

Mężczyźni Kobiety

400 300 200 100 0 100 200 300 400

0

10

20

30

40

50

60

70

80

90

100+

ths

Mężczyźni Kobiety


26

Types of financial consequences of

pension reform

Long-term: reduction of long-term pension system

liabilities (implicit debt)

Short and medium-term: increase or decrease in the public finance

deficit due to pension related expenditures (explicit debt)


27

Transition costs In multi-pillar pension systems

a part or the entire contribution is transferred to pension funds

current pension payments require financing a transition deficit occurs

Options to finance the deficit: current revenue from tax or other sources

• for example privatisation in Poland pension savings or public expenditure

savings• changes in pension formula• changes in retirement age• changes in pension indexation

future revenues - increased explicit debt

Examples:Poland: 1.6% of GDPHungary: 0.6% of GDP


28

Misunderstandings regarding reform

costs

Transfer of a portion of contribution to funded pension scheme is not a cost (but strains on liquidity) it reveals a portion of the implicit debt and it reduces future public finance obligations

Increased funding requirements can be offset by higher debt, purchased by pension funds

Pension funds assets invested into equities stimulate investment and economic growth

It is better to turn a portion of pension liabilities into savings now than to have much greater problems with redeeming such obligations in the future


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Pension expenditure exceeding 10% of GDP Unbalanced pension system requiring state budget subsidies Between 1999-2006 the overall level of subsidies increased mailny due to

inbalances in the pension system – transition costs accounted for less than a half of total subsidy

Pension expenditure State budget subsidies


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Long-term projections Main ways of expenditure

reduction: increase in retirement age actuarially balanced pension

benefits

Rate of return on NDC accounts equal to the wage bill growth Takes into account both

changes in wage level and number of covered workers

Benefit indexation – below wage growth level several amendments up to

date, but revenues grow faster than

expenditures

0%

2%

4%

6%

8%

10%

12%

14%

16%

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

20

22

20

24

20

26

20

28

20

30

20

32

20

34

20

36

20

38

20

40

20

42

20

44

20

46

20

48

20

50

% G

DP

PAYG (old system and NDC)Farmers pensions

Uniformed forces FDC

Pre-retirement benefits


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Change in pension expenditure level is not correlated with multi-pillar system implementation

Design of the PAYG system matters more in that respect

Pension expenditure (% of GDP)

Level in Change from 20042004 2030 2050

EE 6.7 -1.9 -2.5HU 10.4 3.1 6.7LT 6.7 1.2 1.8LV 6.8 -1.2 -1.2PL 13.9 -4.7 -5.9SK 7.2 0.5 1.8SI 11.0 3.4 7.3EU25 10.6 1.3 2.2EU15 10.6 1.5 2.3EU12 11.5 1.6 2.6EU10 10.9 -1.0 0.3EU9 (EU10-PL)

8.8 1.6 4.8

Changes in the PAYG systems


32

Impact on adequacy?

Compared to the value of contributions paid:

Value of pension accounts in OFE are much higher than in ZUS

Relatively low wage growth

Good returns on financial markets

If the current developments are continued, expected pensions could be higher

Value of individual accounts – ZUS and OFE


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Future pension level

0

10

20

30

40

50

60

70

80

90

100

Irel

and

Uni

ted

Kin

gdom

Uni

ted

Sta

tes

Den

mar

k

Cze

ch R

ep.

/Slo

vak

Rep

.

Belg

ium

Nor

way

Sw

itzer

land

Sw

eden

Fra

nce

Pol

and

Fin

lan

d

Ger

man

y

Port

ug

al

Net

herla

nds

Spa

in

Italy

Hun

gary

Au

stri

a

Gre

ece

Luxe

mbo

urg

Source: OECD, Pensions at a Glance, 2005


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Summary Transition costs in Poland include most

importantly the coverage of increased deficit in PAYG scheme: pensions are paid according to the old system

rules part of contributions is invested by pension

funds level of transition financing: 1.5 per cent of GDP

The adequacy of future benefits does not depend on the financing, rather on the type of pension system (DB vs DC)


35

5. Introduction of the second pillar and readiness

conditions


36Source: Own calculations based on data from KNF.

Pension funds in Poland

Market structure - Polish open pension funds (OFEs) end of November 2007

Commercial Union OFE BPH CU WBK ; 26,81%

ING Nationale-Nederlanden Polska OFE; 23,54%

Allianz Polska OFE; 2,44%

AEGON OFE; 2,10%

OFE Pocztylion; 2,02%

Pekao OFE ; 1,61%

OFE „DOM” ; 1,50%

OFE Skarbiec-Emerytura; 2,51%

AXA OFE; 4,34%

OFE PZU „Złota Jesień”; 13,77%

AIG OFE ; 8,19%

Generali OFE; 3,72%

Nordea OFE; 3,50%

Bankowy OFE; 3,05%

OFE Polsat; 0,92%


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Size of the Polish mandatory pension savings industry (Nov 2007)

Open pension fundNet assets value

(in PLN)Members

Commercial Union OFE BPH CU WBK 37 112 974 463,98 2 723 042

ING Nationale-Nederlanden Polska OFE 32 590 264 232,10 2 584 319

OFE PZU „Złota Jesień” 19 062 234 619,12 1 956 671

AIG OFE 11 338 709 327,97 1 069 430

AXA OFE 6 006 066 673,48 607 295

Generali OFE 5 145 095 972,91 538 417

Nordea OFE 4 841 965 702,49 727 532

Bankowy OFE 4 220 371 014,48 445 423

OFE Skarbiec-Emerytura 3 480 307 640,93 445 292

Allianz Polska OFE 3 372 469 601,34 326 082

AEGON OFE 2 912 379 572,22 350 990

OFE Pocztylion 2 791 683 410,46 431 007

Pekao OFE 2 223 242 884,86 291 188

OFE „DOM” 2 073 803 128,85 313 741

OFE Polsat 1 278 380 299,81 301 206

TOTAL: 138 449 948 545,00 13 111 635

Source: KNF (www.knf.gov.pl ) and own calculations based on the former.Note: Exchange rate of National Bank of Poland as of 30 Nov 2007: 1 USD = PLN 2,4589, 1 euro = 3,6267 PLN


38

Members and average premiums as of end of November 2007

Open pension fundNet assets value

(in PLN)Market size

rankingAverage

premium (PLN)

ING Nationale-Nederlanden Polska OFE 2 584 319,00 2 131,38

Commercial Union OFE BPH CU WBK 2 723 042,00 1 125,14

AIG OFE 1 069 430,00 4 116,99

Allianz Polska OFE 326 082,00 10 112,25

Pekao OFE 291 188,00 13 108,40

Generali OFE 538 417,00 6 108,20

AXA OFE 607 295,00 5 108,17

Bankowy OFE 445 423,00 8 107,93

OFE PZU „Złota Jesień” 1 956 671,00 3 104,11

AEGON OFE 350 990,00 11 101,34

OFE Skarbiec-Emerytura 445 292,00 9 98,20

OFE „DOM” 313 741,00 14 96,72

Nordea OFE 727 532,00 7 93,41

OFE Polsat 301 206,00 15 90,33

OFE Pocztylion 431 007,00 12 84,93

TOTAL: 138 449 948 545,00 - 114,79

Source: KNF (www.knf.gov.pl) and own calculations based on the former.Note: Exchange rate of National Bank of Poland as of 30 Nov 2007: 1 USD = PLN 2,4589, 1 euro = 3,6267 PLN


39

Second pillar in Poland (I) Act of 28 August 1997 on organisation and

operation of pension funds (Ustawa o organizacji i funkcjonowaniu funduszy emerytalnych z dnia 28 sierpnia 1997 r.) (Dz.U. 1997 nr 139 poz. 934)

OFE - open pension fund (art. 9-26), the fund's Articles of Association (art.13, changes: art. 22-23)

A depositary (art. 157-165), paid by OFEs: 2006 – 17,38 m zł (3,21% of operational costs)

PTE – a general pension society (art. 27-52): The governing bodies of the society: the Management Board, the Supervisory Board, the General Meeting the Audit Commission


40

Safety mechanisms legal and physical separation of pension

fund from managing company legal requirements for PTE and its staff depositary (custodian) investment limits supervision and control by KNF mandatory minimum rate of return so-called cascade of guarantees (Guarantee

Fund) minimum pension Treasury as the last resort


41

Guarantee Fund (art. 184 and next ones)

• fixed part (primary) – up to 0,1% of net assets

The National Securities Deposit

• variable part (additional) – 0,3-0,4% of net assets

PTE – accounting units, assets of OFE

• total 0,5% of net assetsDoes the value of the GF influence the value of the PTE?


42

Reality of the protection of the whole system?

„The guarantee granted by the State for solvency of the

pension system as the whole is a fiction. Such a guarantee,

even though being an element of public pension systems,

is socially pernicious. It is so because it creates, a

fallacious feeling of safety, which in turn impedes an

adjustment [process] of the system that can really

guarantee this safety.” (Góra, 2003 : 89).


43

Average industry rate of return

• industry average return (AR) weighted by market

shares of OFEs is calculated twice a year (end of

March and September) over 3-years horizon; since April

2003: market share of a pension fund cannot exceed

15%The average is calculated as the weighted average of returns of individual OFEs (ri) and their market shares (xi)

n

i 1iirxAR


44

Mandatory minimum rate of return

• mandatory minimum rate of return (MRR) is calculated as the smallest of two values: the average reduced by four percentage points and the average multiplied by half:

AR

2

14%;ARminMRR

An example:A) industry average was 16%B) industry average was 4%C) industry average was – 5%

Mandatory minimum rate of return is equal to:A) min [ 16%-4%; ½* 16%] = min [12%; 8%] = 8%B) min [ 4%-4%; ½* 4%] = min [0%; 2%] = 0% C) min [ -5%-4%; ½* -5%] = min [-9%; -2½%] = -9%


45

OFEs’ rates of return for the period: 30-09-04

and 28-09-07

Name of OFE Rate of return during the

period Deficit

OFE Polsat 59,22% X

Pekao OFE 56,93% X

AIG OFE 54,73% X

ING Nationale-Nederlanden Polska OFE 54,50% X

Commercial Union OFE BPH CU WBK 54,30% X

Generali OFE 53,10% X

OFE PZU „Złota Jesień” 52,66% X

OFE Pocztylion 52,22% X

OFE Skarbiec-Emerytura 51,60% X

OFE „Dom” 51,19% X

AXA OFE 51,15% X

AEGON OFE 49,97% X

Nordea OFE 48,81% X

Allianz Polska OFE 46,38% X

Bankowy OFE 43,81% X

Average weighted rate of return 52,50% x

Minimum required rate of return 26,25% xSource: KNF.


46

Deficit in the open pension fund

• In case a particular fund achieves a return below the mandatory minimum rate of return, its managing company (PTE) must cover the deficit.

Its amount is defined as a sum which, after the payment of a PTE into its OFE – will increase the investment return to the level of the mandatory minimum rate of return.

• Increasing option leverage.

• Penalties paid by the PTE Bankowy:- end of June 2001: 3,68 mln zł- end of September 2001: 35,38 mln zł- end of December 2001: 16,40 mln zł


47

System of return guarantees

• The deficit is covered from assets put aside in the reserve

account of an OFE by liquidating of accounting units.

• In the case there is not enough assets, the deficit is then

covered by amounts allocated in the additional part of

the Guarantee Fund (liquidation of accounting units).

• If there is still a deficit, it is paid against own assets of a PTE.

• The last two layers of guarantees are: resources of other PTEs

deposited in the primary part of the Guarantee Fund, next –

in their additional parts of the Guarantee Fund and – finally –

the Treasury.


48

Fees for participating in OFEs

Amendment of pension law (15 October 2003) – substantial changes in commissions.

Three main sources of income for PTEs: distributional (up front) fee management fee transfer fee (for changing membership in a fund)

Gradual change of weights of first two commissions:

2002 – up front fee 79,4% of all revenue for PTEs, management fee - 19,2%2004 – 62,9% and 25,7% 2007 – 60,9% and 33,8%2005- 68,2% and 31,8%2006 – 75,5% and 24,5%


49

Up front fee

Charged as a % of contribution entering an account of an insured

During the years 2004-2010 cannot exceed 7%. Next, a gradual reduction:2011 – 6.125%2012 – 5.250%2013 – 4.375%2014 – 3.500%

Commission on a contribution equal to 7,3% of gross salary, i.e. for a 7% up front fee, we have: 0,073*0.07*salary = 0.511% salary

In 2014 this value will drop to 0,2555% (0,073*0,035).


50

Net assets under management (PLN m)

Monthly management fee Yearly fee ranges

(as basis points of net assets)

above up to

8 000 0.045% net assets value per month 54,00

8 000 20 000 PLN 3.6 m + 0.04% of excess of PLN 8 000 m net assets value

54,00 – 50,4

20 000 35 000 PLN 8.4 m + 0.032% of excess of PLN 20 000 m net assets value

50,4 – 45,26

35 000 65 000 PLN 13.2 m + 0.023% excess of PLN 35 000 m net assets value

45,26 – 37,11

65 000 PLN 20.1 m + 0.015% excess of PLN 65 000 m net assets value

≤ 37,11

Source: Obliczenia własne na podstawie ustawy.

Management fee – FIXED part, regressiveCharged once a month as a % of net assets in an insured’s account.

Source: Own calculations based on the pension law.


51

Depends on the results of a fund in comparison to competitors. It can be between 0% (the worst) and 0.005% (the best) net assets per month.

1. A pension fund puts aside in the PTE’s account up to 0005% of net assets per month on the last working day.2. PTE pays this money into a premium account (these assets are still the property of a fund and are recalculated into accounting units).3. On the first working day after the announcement of the average rate of return (end of March and September) of all OFEs, a distribution of assets of the premium account occurs.a) the best PTE takes all – money becomes its property.b) the worst PTE receives nothing – money comes back to an OFEc) other PTEs receive the following part of the accounts (determined by the so-called percentage premium ratio PWP):

Management fee – VARIABLE part

minmax

mini

RR

RRPWP


52

Ri – rate of return of a fund, RMIN – rate of return of the worst fund, RMAX – rate of return of the best fund.

VARIABLE part – example:

minmax

mini

RR

RRPWP

Other part returns to a fund.Example:i) the best 10, other 8, the worst 6ii) the best 10, other 7, the worst 6iii) the best 10, other 9, the worst 6

i) PWP= (8-6) / (10-6) = 2/4 = 0.50 funds goes to a PTE, 0.5 returns to an OFEii) PWP= (7-6) / (10-6) = 1/4 = 0.25 funds goes to a PTE, 0.75 returns to an OFEiii) PWP= (9-6) / (10-6) = 3/4 = 0.75 funds goes to a PTE, 0.25 returns to an OFE


53

Costs of open pension funds 2006

Open pension funds: 1,49% of average yearly assets

Mutual funds (stable growth): 1,67% of average yearly assets

Fees in open pension funds regulated, more transparent – cheaper? Mutual funds are expensive in Poland, however.

• Total expense ratios TER in weighted average actively managed equity funds:

0,92% US vs 1,79% Europe vs 3,73% in Poland.

Source: http://www.altruistfa.com/dfa.htm and Analizy on line.

Source: Polish Chamber of Pension Funds


54

Readiness conditions

IT infrastructure

Wide political consensus

„Window of opportunity” (Polish case)

Market infrastructure (depositary banks, clearing houses, size and liquidity, instruments available vs investment limits)

Staff (managers, investment advisors)

People’s ability to understand financial markets and financial information (informed choice?, drivers for competition?)


55

6. Lessons learnt


56

First pillar:

Information is a challenge

The philosophy of the new systems is to assign contributions to individual accounts

This requires efficient and well designed IT technology

But also ways to avoid errors made by those who transmit information:

employers banks

Contributions that are not assigned and not registered and do not increase individual’s pension rights


57

First pillar

ZUS - Correctness of information

70%

80%

90%

100%

September2001

March2002

September2002

March2003

September2003

March2004

Identification of employers Identification of employees

Formal control Identification of payments

Overall efficiency

Source: ZUS


58

First pillar

Account statements

First account statements for 2001 – summarising contributions paid mailed in 2003

In subsequent years: Contributions for current periods (up to

2005) Plus contributions paid in 2000

In 2007: first information on full NDC account status


59

First pillar

Initial capital Initial capital calculation turned to be a

difficult administrative task Equivalent of retirement of 11 million individuals

Problems in retrieving past wage and earnings history

Changes of the employers Creation and destruction of companies But: problem would have been more acute in the

future

Initial capital calculation completed by the end of 2006


60

First pillar

Pension debate after 1999 Still different retirement ages for men and women at 65

and 60 respectively No political nor social consensus to equalise retirement ages

Problem of falling future replacement rates: Particularly for women due to lower retirement age Increased indexation of notional accounts

• from inflation plus 75% of real wage bill growth• to inflation plus 100% of real wage bill growth

Financial stability of the pension system in the long run Poland assessed as low risk country in long-term perspective

Early retirement Preservation of early retirement rights for additional year

until the end of 2008 – watering down the initial reform plan Still no decision on the bridging pensions that replace early

retirement for some groups


61

Conclusions

Lessons up to date Quality of information must be assured

• All participants are equally responsible for adequate performance of the system

• Computer system is important….• …. as well as system managers• Proper identification should be ensured• Procedures should be designed to avoid errors

Implementation takes time – also as far as retrieving past wage history

Difficulties in overcoming societal believes:• Retirement age of women• Widespread early retirement widely accepted

Political opportunity needs to be seized: all reform items should be placed as soon as possible


62

Raising retirement ages for women Reducing the poverty risk for women Promoting more gender equality

Re-defining the role of minimum pension Current indexation mechanism is reducing the role of minimum

pension guarantee Projections show its limited role in reducing the poverty risk for

those with low wages and short working careers Re-design is needed to develop adequate poverty protection

mechanisms in the future

Relatively fast economic growth may lead to increased income differences between retired and working generations

Building pension-literacy so that people react to the incentives OFE – multifunds, investment limits, performance evaluation

needs to be revised/introduced Annuities market

Challenges for the future


63

7. Pros and cons of the reforms undertaken


64

curbing the implicit debt, showing explicit debt – long-term financial stability

adjusting to current social and demographic situation

labour market incentives

externalities (growth, savings, capital market development, financial market stability, mgmt efficiency etc.)

Pros and cons

social problems – lack of solidarity (redistribution), low pensions for worse-off (particularly in the initial period)

funded system not that immune from political influences

political backlash (transition costs – euro criteria, annuity market, etc.)

DC – problem with investment risk, people’s rational choices and education


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8. Management of the transition and reform process


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Transition method – by cohorts Method of calculating accumulated capital in

the previous system – by initial capital (not by bonos de reconocimiento)

Financing of transition costs – privatization revenues, government taxes

Government Plenipotentiary for Pension Reform – „super office”

Stability of political commitment – cases for revising of the reform (miners, Slovak case – euro problem etc.)

Management of the transition and reform process

Security Through Diversity 1 POLISH PENSION REFORM Presenter: Dariusz Stańko Ministry of Labour and...

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