1. Pension reform and private pension funds in Poland: Goals and Facts.
IISP Seminar, Moscow
Piotr Kurowski
Institute of Labour and Social Studies (IPiSS)

2. Plan of the presentation:
I. Selected macroeconomic indicators for Poland
II. Main features of the old pension system
III. New pension system profile
IV. Implementation and results
V. Remaining Issues to be solved
Conclusions
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3. I. Selected macroeconomic indicators
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4. Selected economic indicators in Poland (ctd.)
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Inflation (CPI Index)
43,0
35,3
32,2
27,8
19,9
14,9
11,8
7,3
10,1
5,6
GDP per capita (USD)
2 197
2 234
2 399
3 085
3 483
3 511
4 066
3 987
4 108
4 653
Average wage (USD)
215,3
220,2
234,4
289,8
323,8
323,7
354,8
430,2
442,6
503,6
Exchange rate (1 USD)
1,36
1,81
2,27
2,42
2,70
3,28
3,49
3,97
4,35
4,09
Capitalisation of Shares / GDP
0,3
3,7
3,5
3,9
6,6
9,6
13,1
20,0
19,0
14,3
Number of listed companies 16 22 44 65 83
143
198
221
123 89
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5. II. Main features of the pension system before the reform
Public pay-as-you-go system
Administered by Social Insurance Institution (ZUS)
Coverage: Workers, self-employed, other groups
Type: Defined benefit
Redistributive formulae of pension benefit
Social contribution (45% of gross wage) paid by employer
Special systems: farmers (KRUS), military service, judges and procecutors
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6. Demographic and system dependency
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7. Generous replacement rates of pension benefits
Average pension in USD
1994
1995
1996
1997
1998
1999
2000
2001
162
200
219
216
231
225
220
259
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8. Expenditure of public pensions as a % of GDP
One of the most expensive pension systems in CCE Countries
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9. III. Formation of the programme of pension reform
Debates since the start of transition
Different concepts of pension reform
Engagement of international financial institutions
Political consensus in area of pension reform
The Governmental Plenipotentiary Office since 1997
Interest and co-operation of financial institutions
Public support for changes in pension system
Working out the legal framework
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10. New pension system in Poland (i)
1. First pillar:
Operating as public pay-as-you-go system
Administered by Social Insurance Institution (ZUS)
Personal social insurance accounts in ZUS
Type: Defined contribution with the new pension formulae (P = Accrued capital of insured/ Life expectancy coefficient)
Non-contributory periods not accepted
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11. New pension system in Poland (ii)
2. Second pillar:
Open pension funds (OFE) operating on funded method
Managed by pension societies (PTE)
Individual accounts for participants
Recruitment of members through registered agents
3. Third pillar:
Voluntary occupational pension programmes
Organised by employers
Social contribution incentives
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12. New pension system in Poland (iii)
4. Participation in new pension system:
Obligatory for people up to 30 years of age
Voluntary for people from 31 to 50 years of age
5. Division of social contribution (36,59% of salary):
12,22% - pension contribution to the first pillar (ZUS)
7,3% - contribution to pension funds in the second pillar
13,0% - for disability pensions (ZUS)
2,45% - for sickness insurance (ZUS)
1,62% - accident insurance (ZUS)
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13. IV. Implementation and results
Participants of pension funds
Pension funds (OFE):
assets
market structure
investments
Rates of return
Performance of pension societies (PTE)
Institutional changes: pension supervision
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14. Participants of pension funds
Predicted number of members of pension funds: 8 millions (60% of insured workers)
Real participation exceeded 10,6 million in 2001
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15. Age structure of participants
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16. Pension funds: number and assets
1999
2000
2001
2002
(Oct.)
Number of pension funds 21 17 16
Pension assets (bln PLN)
2,2
9,9
19,4
29,2
Pension assets / GDP
0,5%
1,8%
3,3% -
Share of members in three biggest funds
56,6%
56,1%
55,7%
55,5%
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17. Pension funds: market structure (Sept. 2002)
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18. Pension funds: selected investment limits
No limits for government bonds
Shares in companies listed in stock exchange – 40%
Shares in bank deposits and securities – 20%
Open-end investment funds units – 15%
Publicly traded municipal bonds – 15%
Shares in National Investment Funds – 10%
Other entities’ bonds – 5%
Investments abroad – 5%
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19. Pension funds: Structure of investment
Instruments
VI.00
XII.00
VI.01
XII.01
III.02
VI.02
IX.02
Bonds
56,0
61,4
61,5
65,8
60,1
64,4
68,2
Equities
30,9
33,6
27,4
28,0
30,3
28,9
25,5
T-bills
9,3
1,5
7,5
2,6
5,0
2,3
1,8
Bank deposits
2,5
3,0
2,8
3,4
2,9
Other
1,2
1,1
0,5
0,8
1,6
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20. Rates of return for 24 months (29-09-2000 - 30-09-2002)
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21. Transfers between funds
Period (quarters)
IV q
1999
I-II q
2000
III-IV q 2000
2001
III-IV q 2001
2002
Number of participants
32.075
32.733
53.843
Transfer payoffs between pension funds in the second pillar are realised every 3 months (last days of February, May, August and November)
Increasing number of members switching funds (ca 1,6% of participants)
Losers: the biggest pension funds
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22. Pension management societies: revenues
Entrance fee: Commission from the contributions
Determined according to length of membership
Min. rate: 6,5% Max. rate: 10% Average: 8,5%
Management fee (max. limit 0,05% of assets’ value per month)
Exit fee (in case of switching pension fund)
Other revenues
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23. Pension Societies: the scope of costs
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24. Pension societies: structure of costs in 1999
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25. Pension Societies: Profits and losses (in m PLN)
Profits / Losses
1999
2000
2001
Total ,2
- 683,21
- 281,5 CU
-90,2
-54,9
+ 43,5 NN
-103,8
-32,1
+18,9
PZU
- 143,9
- 85,5
- 46,0
PKO/Handlowy
-90,1
31,0
-88,5
In pension societies revealed profits, 12 concluded with losses.
In subsequent periods profits should appear in whole system
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26. Institutional changes in Supervision
In September 2001, new government announced consolidation of the supervisory institutions. Supervisory Office over Pension Funds (UNFE) was to be consolidated with Supervisory Office over Insurance Companies (PUNU).
The proposed concept was determined mainly by political factors. Private pension funds accepted this step since they were generally critical to prior UNFE activities.
Among specialists dominant opinion was either to leave UNFE as a special supervisory institution or to consolidate it with Securities Commission (KPW).
In April 2002 UNFE was merged with PUNU.
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27. VI. Remaining Issues to be solved
Individual records in first pillar (ZUS)
Delays in timely transferring contributions from ZUS to pension funds
Different approaches in accounting system of pension funds (lack of comparability)
18,3% of accounts in pension funds are dead ones ( in September 2002)
Delay in legal regulations of bridging pensions and annuity companies
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