Readability, efficiency and costliness of individual retirement products in Poland

Sylwia Pieńkowska-Kamieniecka,Patrycja Kowalczyk-Rólczyńska,Joanna Rutecka-Góra,Milena Hadryan

doi:10.24136/eq.2021.002

Abstract

Research background: The role of supplementary pension systems in providing adequate income in old-age is increasing significantly. They are frequently analysed, but rather in terms of architecture, product forms, assets under management or tax incentives than in terms of their efficiency, costliness or readability for individuals. Purpose of the article: The first aim of this paper is to evaluate individual retirement products in Poland regarding their linguistic readability and transparency, investment efficiency and costliness. Moreover, we examine whether there is any correlation between the analyzed characteristics of contracts that would suggest an intentional strategy by financial institutions to hide low efficiency and high costs. The second aim of the article is to assess which individual retirement products are similar to each other and which are significantly different. The research covers two types of individual retirement products (IKE and IKZE) offered at the beginning of 2017. Methods: We used the ?Jasnopis? linguistic analysis tool to assess the difficulty level of the language used in the contracts and we conducted desk-research to analyse their transparency. We indicated the costliness and efficiency of the products by calculating the 5-year cost ratios and real average 5-year rates of return. To examine the relations between the characteristics of pension contracts, we used the Spearman's rank correlation coefficient and then verified its significance with a non-parametric test. Moreover, to identify groups of products that are similar to or different from each other, Ward's method was used. The study includes nearly 90% of all individual retirement products offered in Poland. Findings & value added: For both types of retirement products studied (IKE and IKZE), we found that the more readable a contract is, the higher its rate of return is and the higher the costs charged are. Moreover, the more readable a contract is, the more transparent it is. The findings of the study provide financial institutions, the supervisor and creators of social policy with information on market imperfections and recommendations how to improve the individual retirement products offered on the market. Our research makes a unique contribution to the multidimensional research of supplementary pension systems. It also develops the understanding of how to successfully use linguistic tools in complex analyses of financial services. The results of the hierarchical cluster analysis proved that both IKE and IKZE products differ substantially and their features generally do not depend on the type of the financial provider.

Highlights

Reforms of old-age pension systems have changed the architecture of both basic and supplementary pension schemes
Decreasing replacement rates from public systems resulted in more attention being paid to voluntary pensions plans that should supplement old-age income to an adequate level and offer individuals protection against outliving their savings (OECD, 2012; OECD, 2019)
It is a good example of a country that should provide its citizens with efficient supplementary pension plans if the goal of adequate income in old age is to be achieved

Summary

Introduction

Reforms of old-age pension systems have changed the architecture of both basic and supplementary pension schemes. The development of a supplementary pensions system depends on many factors with household wealth, the level of public benefits, and both state and employer participation being the most important (Guardiancich & Natali, 2011; Casey & Dostal, 2013; Collins & Hughes, 2017; Styvens, 2019). Despite their actual existence and the scope of factors stimulating supplementary pension plans, their proper operation and satisfactory development is quite necessary in most countries. It is a good example of a country that should provide its citizens with efficient supplementary pension plans if the goal of adequate income in old age is to be achieved

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Conclusion