Minimum Pension Guarantee in Poland Zofia Czepulis-Rutkowska Seminar for social security actuaries and statisticians: actuarial aspects of pension reform Moscow, Rusian Federation, 3-5 July 2002

The present pension system consists of three parts Employee pension system Farmers’ pension system Military and police pension system

These pension systems are: Integrated with disability and survivor pension systems Pay as you go Defined benefit

The employee pension system Is the biggest one in terms of participants number and funds involved Was reformed Is the subject of this presentation

Present system eligibility conditions Mandatory retirement age – 60 years for women and 65 for men Insurance duration –20 and 25 years respectively

Pension benefit formulae PA=0,24*B+0,013PW*LS+0,007 PW*LN PA - pension amount B - basic amount PW – calculation base LS – contribution years LN – non contribution years

High pension expenditures resulted from Generous formulae Easy access to benefits Beneficial indexation

Minimum pension - eligibility Eligibility to pension benefit Pension amount (according to calculation formulae) lower than the minimum

Minimum pension in statistics 6% of all old age pensioners get the minimum pension 85% of them are women minimum wage = 143% minimum pension average wage = 380% minimum pension poverty line in social assistance = 77% minimum pension

The new old age pension system reasons of introducing High pension expenditures amounting to 15% of GDP and projections showing sharp increase in these expenditures in future Macroeconomic arguments indicating the chance to use the pension reform to create savings and sound capital market institutions

New old age pension system the changes Old age pension system is separated from disability and survivor pension system Funded financing is introduced Defined benefit formulae is introduced

The new old age system Two obligatory pension pillars are introduced Contribution = 19,52% calculation base (individual average wage) People born after 1948 have to join the new system

The first pillar Contribution = 12,22% calculation base Notional capital is accumulated on individual accounts and indexed with 75% of the wage index The pension amount equals capital devided by life expectancy Administration and payment of the benefits by Social Insurance Institute

The second pillar Contribution = 7,3% calculation base Benefit amount depends on accumulated capital and annuity market Administration by private pension funds Institution accountable for benefit payment is still to be detrmined

New old age pension system most important safety rules Separation of the pension fund assets from the pension fund company assets Required diversification of investement limits A minimum rate of return Supervision institution

Minimum pension guarantee in the new system Insurance period – 20 years for women and 25 years for men providing it was full time employment Amount of benefits from two pillars lower than the minimum pension Financing from the general budget Administration by Social Insurance Institute

The government libilities will depend on Regulation that will probably change (retirement age) Regulation that need to be clarified (institution accountable for benefit payment in the second pillar) Regulation to be prepared yet („bridge pillar”)

Other social security institutions that matter Old age system for farmers Disability pension system Social assistance