1. 1 Polish Pension Funds: best practice solutions 5 years after pension reform Dr. Paweł Wojciechowski CEO PTE Allianz Polska SA Presentation Pension Reform in Eastern Europe, Experiences and Perspectives Kiev, Ukraine, May 27 - 28, 2004

2. 2 Poland introduced in 1999 one of the most comprehensive pension systems of all CEE countries Trends in PF systemsPolandExplanation Multipillar+ I pillar – mandatory, public II pillar – mandatory, private asset managers III pillar – voluntary, occupational and personal* Public - private partnership+ II pillar – private asset managers PTE manages OFE III pillar – investment, insurance ** Defined Contribution+ I pillar – notional DC, linked to inflation and wages II pillar – funded, DC, individual III pillar – funded, DC/DB, individual and collective EET+ II pillar – EET III pillar – TEE Liberal investment limits+/- II pillar – rigid restrictions, ex. 5% foreign investments III pillar – liberal No minimum guarantee in DC-II pillar – minimum guaranteed return *in September 2004 – III pillar Individual Retirement Account (IKE) scheme is introduced **also banking products are allowed in III pillar Individual Retirement Accounts

3. 3 Mandatory contribution is almost 20% of wages  will give about 40% replacement rate Pension I PILLAR Social Insurance Premium: 35,94% to 38,83% of gross salary – depending on value of accident insurance premium Pension – 19,52% Disability - 13,00% Sickness – 2,45% Accident – 0,97% to 3,86% ZUS (Social Insurance Institution) FUS (Social Insurance Fund) Pension OFE (Pension Fund) Premium 7,30% Pension II PILLAR Entity to be established in the future Annuity Depository Bank PTE (Pension Fund Society) Capital withdrawal

4. 4 Old-age Dependency Ratios Source: National Statistics, Eurostat, World Bank, Allianz Group Economic Department

5. 5 OFE Investment Results as of Dec. 31 st 2003 Source: PAP

6. 6 OFE investment returns are above expectations  i.e. more than 5% of real yearly investment return Source: own, based on GUS data

7. 7 Share of first pillar in future pension will decrease  to increase replacement ratio from 40% to 60% need to have well-functioning III pillar Contributio n to I pillar: 167 PLN Contribution to II pillar: 100 PLN Accumulated Capital in 20 years in II pillar: 972 PLN Accumulated Capital in 20 years in I pillar: 554 PLN Accumulated Capital in 20 years in II pillar: 972 PLN Accumulated Capital in 20 years in III pillar*: 557 PLN Accumulated Capital in 20 years in I pillar: 554 PLN  2000 2020 * from Sept. 2004 Source: own calculations

8. 8  Polish PF market will account for over 60 % of Assets under Management of CEE pension funds by 2010 Source: own calculations II pillar AuM will reach 1/3 of Poland’s GDP in 2020

9. 9 Source: KNUiFE (Insurance and Pension Funds Supervisory Commission) Portfolio Structure (%) of OFE as of Dec. 31 st 2003

10. 10 Source: MoF, WSE * from 2004 OFE Investment Limits vs Depth of Capital Market  small capital market will hinder investment returns, if 5% foreign investment limit is maintained

11. 11 WSE is stagnant in the last 4 years  new IPOs expected as the WSE stock index goes up Source: KPWiG ( Polish SEC) WIG

12. 12 existing lawnew law 2004 level of guarantee Minimum of (half market average) and (weighted market average– 4%) whichever is lower weight no capweight capped at 15% measurement period 2-year rate of return3-year rate of return measurement frequency 4 times per year2 times per year „pecking order” Reserve Account 1,5% NAV of Underperforming PF Guarantee Fund 0,4% NAV of Underperforming PF Own Equity of Underperforming PF Guarantee Fund 0,1% NAV of all PFs Guarantee Fund 0,4% NAV of all PFs (except Underperforming PF) Own Equity of Underperforming PF System Guarantee – II pillar Poland

13. 13 Financial Results of PTEs (mln PLN)  how does public - private partnership work? Source: KNUiFE, Parkiet * acquired and consolidated funds

14. 14 Competitive Position - market share by NAV  the market will continue consolidation Source: own, KNUiFE, * acquired and consolidated funds

15. 15  Poland introduced one of the most comprehensive pension systems in CEE countries in 1999 that follow best practices: multi-pillar, funded, ppp, DC, EET  With the introduction of Individual Retirement Account in 2004 hopefully the replacement rate will increase in 20 years from 40% to 60%; and 2/3 of future pensions will come form II and III pillars  The AuM will grow rapidly providing new opportunities in Polish capital market; however if Polish capital market will not grow than the 5% foreign investment limit has to be liberalised  Minimum Guaranteed Rate of Return of II pillar Pension Funds hinders investment return in the long-run, and will have to be modified Conclusions

16. 16  Further modernisation of pension system in Poland requires: - liberalization of II pillar investment regulation - introduction of annuity institution from mandatory II pillar - increasing number of pension funds managed by PTE - assuring equal retirement age for M (now 65) and W (now 60) - inclusion of all employees in reformed pension system - building trust in public-private partnership  Poland used best practices in reforming its pension system and reached desired features: adequacy, sustainability, portability, effectiveness