Open Pension Funds in Poland, the snapshot of next decade Tomasz Bańkowski Pekao Pioneer PTE FIAP Conference, Warsaw, May 2009

2 OFE to day and after next 10 years ….  Key factors influencing public opinion and social understanding of OFE in 2009  Assessment of key factors from public and OFE perspective  OFE towards improvments  Forecasted results of changes in next decade  Will it become truth…

3 Key factors influencing public opinion and social understanding of OFE in 2009 External as:  Economical cycles and public trust to financial institutions  Public knowledge on financial part of social reform and mass media function  Process of legal framing and business stability  Political climat for more rational and complex shape of OFE Internal as:  OFE investments results and risk diversification  Safety of collected and located OFE assets  Operational efficiency of PTE and customer care  Operational and system costs of OFE/PTE OPF industry

4 Assesment of key factors from public and OFE perspective External factors, independent from OFE industry influence negative on public opinion and trust. Partial approach to structuring and implementation of social reform makes difficult to expand public understanding of financial part of reform and pension reform both Internal factors, dependent from OFE industry influence les negative way. Investment results are criticised due to unrealistic awaiting. Luck of competition between OFE is criticised. OFE fees are publicly treated as not justified. But capital market as additional but necessary vehicle of pension reform is accepted more widely

5 OFE towards improvements  Implementation of portfolios with different risk/profit ratio  Opening for other investment categories and limits allowing better risk control and global risk differentiation  Setting external benchmarks in place of Av. Int. R.of Return  Reducing risk of misselling and sunk costs by rationalisation of member transfers  Implementing temporary and than permanent Pension Clearing Houses within rationale financial frames  Searching for better coordination and development between all three pillars of pension system

6 Forecasted results of changes in next decade  Different OFE risk/profit portfolios will split members opinions and will not raise their level of satisfaction. The balanced portfolio strategy may win again in longer investment horizon  Expanded list of investment categories and higher foreign with risk controlling options will reduce volatility of OFE investment result  External benchmarks will replace AMRR but will open a window for deeper reduction of fees and passive index investing  Regulator will limit distribution activity on OFE secondary market which will freeze transfer activity  Discussion on organisation and costs of Pension Clearing Houses will not end  Better model in terms of more stable pension pay outs between non financial and financial pillar of pension reform will be proposed  Costs of financial part of pension reform will be reduced due to market concentration and technological progress

7 Will it become truth…….  Benefits from financial part of pension system will overweight non financial part  Investment process regulation of pension funds will be standardised in E.U.  OFE operational costs will be seriously downgraded  Public understanding and trust to individual and financial pension system will be much stronger