The proposals contained in the present by the Ministry of Development “Capital Construction Programme” are a key element of the ‘Plan for Responsible Development “promoted by deputy Matthew Morawiecki. The main declared objective of the proposed changes, which are to be implemented from 2018. Is to build Poles’ savings, as a result, increase investment in the economy and accelerate the development of the country. It’s hard to find someone who would not subscribe under such slogans. However, the analysis presented the “Program …”, in fact quite general, shows that its actual purpose is to provide financial market new big flow of money from public sources and by new burdens salaries. Not surprisingly, therefore, the enthusiasm with which the proposed action met by the institutions operating in this market, including banks, insurance companies and investment funds.
The way to gain support for these actions to be convince the public that it will translate they are a significant increase in pensions due to the development of the third pillar. While so far participated in this pillar is completely voluntary, so much planned new measures will in fact forced. They concern changes in open pension funds (OFE) and the introduction of the obligation of employee participation in corporate capital plans. So far this pillar aroused little interest Poles. To acting on its employee pension plans (PPE), individual retirement accounts (IRA) and individual account pension security (IKZE) money transfers approx. 3 per cent. employees. This is due both to the low level of wages of most Poles, as well as their belief that investing in the financial market is high risk.
New OFE
Relatively many emotions triggered proposals for change funds. The media often appeared even an opinion that would be liquidation of OFE . Meanwhile, the authors of the “Programme …” are far from doing so.
The liquidation of this certainly will not be proposed transfer of 25 per cent. OFE assets (35 billion zł, mainly foreign shares) to the Demographic Reserve Fund (DRF). It is a good solution, but only a small part of the fund’s assets, because the rest of the assets, or 75 percent. (103 million zł), would be transferred to new accounts that would be created for all members of the open pension funds (16.5 million people). Members OFE would have the possibility to opt to the equivalent of these assets instead of IKE hit their sub-accounts held by the Social Insurance Institution.
the universal pension companies, currently managing OFE, would be transformed into an investment fund company (TFI) and compete with other TFI that could also manage money coming from pension funds. IKE advantage over OFE would rely on the fact that the participants of the IRA would have an impact on the funds’ investment policy, being able to choose a policy tailored to your needs and preferences. In this way, several million people would be active investors in the financial market, though most of them are not only not be able to understand complex financial instruments, but even to distinguish between shares from bonds.
Besides, it is not clear what would rely on the ability to choose the investment policy, as OFE transformed into IKE would be funds investing in Polish shares, therefore, the assumption would be high-risk funds. Moreover, the question arises, what actually would vary policy by investing IRA in Polish shares from the policy, as a result of which already more than three-quarters of pension fund assets are shares (and related financial instruments) are traded on the domestic market. And basically these securities would be transferred from the OPF to the IKE.
From the point of view of 16.5 million OFE members It is essential that the funds transferred to the IRA could be paid to them after reaching retirement age. Thus, even for several years, would, like now in the OPF, traded on the financial market, subject to the following breakdowns stock exchange and financial crises. During this time, TFI pobierałyby regular fee for the management of these resources, depleting what ultimately would be for future retirees. After reaching retirement age should they get 1/4 of a lump sum (superprezent to enlist public support), and 3/4 as retirement periodic or lifetime. In this way, realized would run down since the 90s by the lobbyists of the financial market called the idea. pension institutions, which had to pay a pension from the pension funds. It is known that such a pension paid not only not subject to indexation, but otherwise the risk of loss of value due to inflation and financial crises would be vulnerable to defrauding by managing and negative effects of bankruptcy. It is for these reasons president Lech Kaczynski in 2009. Vetoed the law on funds, annuities capital.
Changing OFE IKE also carries enormous implications for public finances, since it means that ZUS in general no longer receive the more than 100 million zł (currently they get there somehow in installments, within the framework of the security slider, for example. this is a 5 billion zł in 2016.). According to the proposed concept of OFE funds have been definitively interception by the financial market and could not be longer allocate them to finance current and future pensions from the Social Insurance Institution. The government will therefore have to raise taxes or borrow additional loans, which will greatly increase the public debt.
In this way, the proposed transaction to privatize a gigantic amount of public money currently in OFE finally painfully hit the whole of society. Another effect of this operation will be the need for higher subsidies from the budget to the minimum pensions, as on individual accounts in ZUS will be saved eventually smaller amounts.
Compulsory saving
The second element of the offensive third pension pillar to be employee equity plans (PPK) and individual plans capital (IPK). It should be pointed out that a similar concept relating to occupational pension schemes, introduced in January 2015. In the Presidential Palace, the current deputy Ryszard Petru.
The PPK / CPI contribution would have to pay both the employee (in the amount of 2 per cent. Of the monthly salary and voluntarily in addition a further 2 per cent.) and the employer (2 percent. employee’s salary, including 0.5 percentage points. would come from the Labour Fund and constitute a contribution to the state). Over the first two years of the system obsługiwałaby governmental institution – Polish Development Fund, then private financial institutions. Plans capital would be automatically enrolled all employees of companies (starting with the largest companies), ranging in age from 19 to 55 years. The employee could opt out of participation in the PPK / IPK, if within three months of the establishment of the plan złożyłby a statement.
And this is exactly the crux of this concept on the capital plans. The authors hope that millions of people within the prescribed period and will not make such a statement, eg. For lack of time, the scarcity of knowledge or fear of losing their jobs. This means that to play in the financial market will be pulled money from the salaries of people who on their own initiative, such a decision would never have taken. It is assumed that as many as 5.5 million to increase the number of people participating in the third-pillar pension schemes with the expected participation of 75 per cent. employees (now the whole third pillar is involved only 3 per cent. of employees). In this way, the financial market of workers and employers trafiłoby year additionally 12 billion zł (the premium 4 per cent.) To 22 billion zł (the premium 7 percent.). In fact, it could be even more, because the decision to withdraw from the capital plans may take no more than 15 percent. workers because it would require active participation (declaration), which, as practice shows, take only a few people.
In view of the impossibility to withdraw from these plans at a later time great crowd of workers in the years and decades would be compulsory transfer of part of the monthly salary on the financial market. This would mean a reduction in their disposable income and the possibility of financing their consumption needs and investment, which would be particularly felt in the case of the poorest workers. If you can not be at any time opt out of paying contributions to the PPK / IPK, these premiums would actually tax, which is a mandatory provision, based, as in the OPF, coercive state. In addition, the collected funds could be in principle, benefit after retirement (through a one-time payment of up to 25 per cent. Of the redemption and annuity term or perpetual). Risks are similar to those indicated above in relation to OFE, which would be converted into a new IRA.
Palm trees and the sun
Founded effects that future retirees is to give savings in the context of capital plans, you can described as very optimistic, because the premium of 4 percent. paid by 40 years the replacement rate (the ratio of pension to the last salary) would increase by as much as 15 pct., while the premium 7 percent. as much as 26 percentage points. Such excellent results are based, among others, on the assumption that the encouragement of public funds will constitute up to 1/3 of the funds transferred to the PPK / IPK, and that the real annual rate of return on investment would be up 3 percent. during this period.
If we consider that the entire pension contributions of 19.52 percent. salary, the estimated replacement rate in 2060. is less than 30 per cent., you can have the impression that investing in the financial market is in fact a wonderful way to increase pensions. Poles were so vision that many times lower premiums can receive high retirement. Many of them still remember a very colorful visions of pensions under the palm trees that accompanied the introduction of open pension funds in 1999.
If the changes put forward by the Ministry of Development in early July will be implemented in practice, Poland will continue to flounder in the capital system, where the costs and risks borne by public finances and future retirees.
Practice shows that what people need most is a well-functioning public pension system based on intergenerational solidarity. This is the cheapest, easiest and most customizable fair system of pension provision. Other systems do not meet these conditions, because their real goal is not a pension, only the profits of financial institutions, no matter how beautiful your password on investment and economic development underlie ago. The state has many possibilities of direct financing, even with new taxes, infrastructure projects, science, research and development, supporting business innovation.
The concept proposed by the Ministry of Development ultimately also means an additional load of Poles, including tax, so that the benefits of this accrue basically a handful of financial intermediaries. The subject of special mention should be the prospect of transformation of Polish Development Fund, an institution in possession of huge money and privileges. At the end it is worth noting that the proposed market solutions are not only able to alleviate the problem of low pensions, which will be the result of the pension reform of 1999., But will also contribute to increased social inequalities. ©?
The real purpose of the pension reform is to ensure financial market new big flow of money from public sources and by new burdens salaries. Not surprisingly, therefore, the enthusiasm with which the proposed action met by the institutions operating in this market, including banks and insurance companies
Prof. Leokadia Oręziak head of the Department of International Finance at SGH. The author of the book “funds. Disaster privatization of pensions in Poland “(first prize in the competition DGP” economicus “in 201 4 r. To the best book of spreading economic knowledge). In the years 2014-201 5 c złonek Presidential Committee. Reform Pension (Comisión Presidencial Assessor Sobre el Sistema de Pensiones) appointed by the President of Chile Michelle Bachelet, the author of the concept of restoration in Chile public PAYG pension system PAYG
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