1. Old-age pension benefits in Poland – do they meet changing needs of the retired? Joanna Rutecka Institute of Statistics and Demography Warsaw School of Economics, Polish Pension Group SGH

2. Outline of the presentation 1.Old-age pension benefits in Poland – basic characteristics 2.Three „seasons” of old-age 3.Pension gap 4.Filling the pension gap 5.Conclusions

3. Old-age pension benefits from public system in Poland -defined contribution formula (NDC and FDC) -benefit level depending on: -individual account balance -age of retirement - annuity -replacement rate: 35%-50%

4. Old-age pension benefits in Poland Assumptions: an insured starts working at 23 and earns an average wage; real indexation of pension entitlements 2.5% p.a.; real wage growth 2.5% p.a. Source: Góra & Rutecka 2012.

5. The effect of mixed indexation (inflation+20% real wage growth) on replacement rates in Poland average wage pension benefit PLN AGE Assumptions: an insured earns an average wage and retires at 67; real indexation of pension entitlements 2.5% p.a..; real wage growth 2.5% p.a. Source: Rutecka 2015.

6. Sources of income in old age (PolSenior 2012) Public pension is the main source of income for: 95% of retired men 80% of retired women (18% receive survivor’s pension) 30% of male pensioners and more than 50% of female pensioners receive benefit below social minimum (PolSenior, Błędowski 2012) The relative level of benefit decreases with age (diminishing adequacy) – an average benefit of retirees aged 95 is much lower than those aged 75. The retired receiving an old-age benefit up to PLN 1000 (ca. 240 euro) are mostly women; many of them run single-person households

7. Three „seasons” of old-age Source: own collaboration based on: DC Lessons from around the globe, Mercer Global, 2014. Change in needs/ consumption „active” retiree (65-75) „sedate” retiree (75-85) „frail” retiree (85+) IIIIII

8. Changing needs of the retired I – „active” retiree high social activity, making dreams come true (travelling, devoting time to hobbies) good health and high physical activity (recreation, sports) helping family, taking care for grandchildren II – „sedate” retiree moderate social activity moderate physical activity relatively good health, some diseases but still able to perform most activities of daily living III – „frail” retiree limited social activity poor health inability to perform many activities of daily living increasing spending on medical services

9. Changing consumption of the retired (GUS 2014) Expenditures by type Expenditures per capita in employees’ households Expenditures per capita in retirees’ households PLN Share in total expenditures PLN Share in total expenditures Consumption goods and services, total1010.71100.0%1131.32100.0% Food248.8124.6%324.7828.7% Alcohol, tobacco, drugs27.802.8%29.562.6% Clothing and shoes59.515.9%36.463.2% Housing costs including energy203.5520.1%286.0725.3% House equipment and running the household50.775,0%51.534.6% Health41.874.1%101.929.0% medical equipment and drugs25.632.5%78.136.9% medical services16.231.6%23.792.1% Transport114.7311.4%81.027.2% Communication56.135.6%55.514.9% Recreation and culture74.127.3%62.645.5% Education16.231.6%2.430.2% Restaurants and hotels33.783.3%18.791.7% Other expenditures, including:62.446.2%68.266.0% social assistance0.920.1%1.340.1% insurance17.631.7%22.422.0% life insurance 7.200.7%9.740.9% health insurance 1.150.1%0.940.1% Pocket money20.962%12.351.1%

10. Pension gap Źródło: own collaboration based on: DC Lessons from around the globe, Mercer Global, 2014. „Active” retiree (65-75) „sedate” retiree (75-85) „frail” retiree (85+) Needs /consumption Pension gap Pubic old-age pension benefit

11. How to fill pension gap? „Active” (I) and „sedate” (II) period of old age: extending working life (full employment or combining part-time employment with partial old-age pension), supplementary savings for old-age „Fragile” old age (III): supplementary savings long-term care insurance (longevity insurance annuity?)

12. Conclusions 1.Standard forms of old-age pensions offer flat level of real benefits in the long term while the consumption (needs) is similar to „U” shape. 2.Old-age is not homogenious and consists of three „seasons”: (I)„active” retirement, (II)„sedate” retirement and (III) „frail”retirement. 3.There is a contradiction between decreasing relative level of pension (replacement rate) and increasing needs in old age. 4.Pension gap appears largely in the first and the last „season” of old age. While it can be rather easily filled in the first stage, the incufficient income in very old age is a serious problem to tackle. 5.The pension gap can be filled by extending working life, saving for old age or long- term care insurance (longevity insurance annuity). 6.Special focus have to be put on alleviating poverty at the age of 85+. This risk is especially high for older women living in a single-person households.

13. Thank you for your attention. Joanna Rutecka Polish Pension Group Warsaw School of Economics joanna.rutecka@sgh.waw.pl