Reversal of the Pension Reform in Poland

(ProQuest: ... denotes formulae omitted.)IntroductionThe pension system in Poland was reformed at the end of the XX century. Due to this original reform, the defined benefit plan was replaced by the defined contribution one. The new pension system consisted of two mandatory pillars: Social Insurance Institution (SII), representing the pay-as-you-go system (PAYG) and open pension funds (OPF), representing fully founded system. The third voluntary founded pillar completed this system.The reform of the pension system was very profound but suffered from several shortcomings. The main problem has been the permanent shortage of funds to pay the pension benefits, what causes the increase of the budget deficit. The criticism of the pension system functioning resulted in the essential transformation of the system, concerning: (1) the distribution of the retirement contribution between the SII and the OPF, (2) the retirement age, and (3) the pension funds functioning, among others.The new law (which went into affect in February 2014) shifted 51.5% of the assets, held by the OPFs (about 150 billion PLN1) to the state-run PAYG pension system (i.e. to the SII), including all debt securities issued and guaranteed by the State Treasury. According to the new regulations, the second founded pillar became no longer obligatory. There was an automatic transfer of the retirement contributions to the SII, instead of the OPF, unless an individual OPF member files a declaration2 requesting his/her contributions to be transferred to the selected OPF. Now the contribution, which goes to a chosen private fund, is only 2.92 percent of the individual's income. In the original reform was 7.3%, i.e. the contribution collected by Social Insurance Institution was 1.7 of the contribution collected by pension funds. At present this proportion is 5.7 for the individuals who decided to transfer the part of their pension contribution to the OPF. Also all employees, in the age equals the official retirement age reduced by ten years and higher, must transfer all their pension contribution to the SII.Overhaul of the pension system also concerns changes in the OPFs' investment portfolio since private pension funds have no longer been allowed to invest in government bonds. That will leave the pension funds with most of their assets held in shares of the companies listed on the Warsaw Stock Exchange and give them an increasingly peripheral role in the future retirement benefits of Poles. However the pension funds operating in Poland became allowed to increase the share of foreign investments in their portfolios, what may cause the capital outflow from the Polish market. Further outflow of funds from OPFs or lack of inflow will result from the gradual transfer of each person's retirement funds managed by OPF to SII, which will start ten years before reaching retirement age3.The changes, which took place in the years 2011 and 2014, have been considered (by the government) necessary to lower Poland's budgetary deficit. Many specialists call these changes the significant step backward4, un-privatizing the pension system5 or even the most drastic nationalization of private assets since Soviet times6. However, Polish Prime Minister Donald Tusk claimed it is no more than a bookkeeping change in the way to handle the public's retirement money (Bilefsky, Zurawik, 2013).The new regulations, introduced in 2014, will lead to a change in the composition of assets' portfolios managed by OPFs not only due to the forced transfer of assets to SII but also due to new rules applicable to OPF investment activities. According to Polish Financial Supervision Authority7, shares of Treasury bonds and equity instruments in the OPFs' portfolios in 2013 were the biggest among all instruments and nearly equal i.e. 42% and 43%, respectively. At present pension funds are not allowed to invest in Treasury Bonds thus they will look for other instruments for investments, also abroad. …

З'ясовано, що зростання витрат на фінансування пенсійних систем як Польщі, так і України відбувається через демографічну кризу, соціальні зміни та економічну кризу як на глобальному, так і національному рівнях, змушуючи до реформи цих систем. Сьогодні Україна активізує процес запровадження недержавного пенсійного забезпечення. Йдеться про систему накопичувального пенсійного забезпечення і, зокрема, про недержавну систему пенсійного забезпечення. Саме недержавне пенсійне забезпечення породжує в українському суспільстві низку питань, на які змогла відповісти своєму суспільству Польща після того, як запровадила нову пенсійну реформу. Запровадження тристовпеневої польської пенсійної системи (перший стовп – фонди установ соціального страхування, другий стовп – відкриті пенсійні фонди, третій стовп – пенсійні програми працівників, індивідуальні пенсійні рахунки) пояснило польському суспільству який вік виходу на пенсію згідно з новою пенсійною реформою, наявний мінімальний соціальний стаж у разі виходу на пенсію, чи вигідно приховувати або знижувати доходи під час декларування їх у новій польській пенсійній системі і чи будуть оподатковуватись майбутні пенсійні виплати з податку на прибуток. Отже, бачимо, що Польська тристовпенева пенсійна система є дещо подібна до трирівневої пенсійної системи, яку задекларовано в Законі України "Про загальнообов'язкове державне пенсійне страхування". Проте запровадження недержавного пенсійного забезпечення в Україні (другий та третій рівні) перебуває на початковій стадії. Для активізації системи накопичувального пенсійного забезпечення необхідний розвиток страхового ринку України, який ще мало розвинений, а тому нам треба використовувати досвід як країн Європейського Союзу, зокрема Польщі, так і інших країн світу, що досягли високих результатів у цьому питанні.

Since the early twentieth century, Poland has had a Bismarckian pension system characterized by pension contributions, pension funds and equivalent pension provisions. After World War II, this system was modified by the introduction of many redistributive mechanisms. After the political and economic transformation in 1989, the need for pension reform arose, and 10 years later systemic pension reform was conducted. The most important changes included the new pension DC formula, the introduction of funding in the public pension system (open pension funds) and the implementation of occupational pension schemes. However, wide coverage (inclusion of most working careers) and a minimum pension remained unchanged and contributed to the mitigation of old-age poverty. The reform was aimed at financial sustainability, especially at the cost of the pension level. In the following years, the system has been modified by the reduction of funding in the public pension tier and the development of voluntary or quasi-voluntary pension savings. However, the pension system in Poland, where the population is aging rapidly, has to face some important challenges, such as a decrease in replacement rates from the public pension system, expansion of future poverty among older (female) beneficiaries and insufficient additional nonpublic pension savings.

We analyze the impact of monetary policy communication of the National Bank of Poland (NBP), i.e. NBP announcements of interest rates changes and NBP announcements of new macroeconomic figures, on the financial market in Poland in its two main segments: the foreign exchange market and the stock market, and we provide evidence on how they react to public information released by the NBP. In particular, we are interested in the uncertainty (i.e. risk) effects and the wealth (i.e. return) effects of NBP communication, i.e. whether the NBP announcements had any influence on stock and foreign exchange returns and on the activity of those two markets. Using ARCH methodology, we document negative effects in the conditional variance of ARCH models of WIG index volume of trade and WIG returns and PLN/USD bid-ask spread and PLN/USD returns, suggesting the existence of calming effects of NBP communication with financial markets on the changes of their activity. The evidence presented in our study indicates that the NBP announcements had stabilizing effects on stock and foreign exchange markets in Poland.

In recent years, a number of modifications that have a significant impact on the shape of the pension system in Poland are introduced and discussed (e.g. OFE [Open Pension Funds] reform, implementation of the PPK [Employee Capital Plans], introduction of civil pensions, etc.). The result of these changes is that the traditional, three-pillar way of presenting the shape of this system does not reflect its essence any more. On the basis of the typologies of multi-pillar pension systems proposed in the literature, the study propose a new concept for presenting the shape of the general pension system in Poland. It consists of four levels of pension security, distinguished by the criterion of the initiating subject. These levels together form the base and the supplementary part of the pension system.

The significant increase of the old-age-dependency ratio in Poland after the collapse of the centrally planned economy required transformation of the retirement system to adopt it to the current situation. Therefore the essential reform of the pension system in Poland took place in 1999, when the one-pillar – pay as you go system was replaced by the three-pillars system consisting of mandatory, pay-as-you-go pillar; mandatory, fully funded pillar; and voluntary, funded pillar. However problems concerning budget deficit in Poland caused that the Polish government introduced essential changes concerning distribution of the pension contribution between both mandatory pillars and in the pension funds’ portfolio composition in 2011 and 2013. The aim of the research is to analyze the performance of the pension system in Poland in the years 2000-2013. The performance of private pension funds will be evaluated and compared to the “performance” of so-called national scheme.

Purpose: The article discusses financial aspects of the functioning of pension systems in selected countries of the European Union. Changing demographic conditions (aging populations) pose a serious challenge to the financial stability of pension systems in Europe. This article discusses the differences between the pension systems of two selected European countries - Poland and Germany - in terms of pension expenditure, the efficiency of these systems and changes in financing between 2021 and 2024. The aim of this article is to analyze the issue of financing in two representative countries: Poland and Germany, to identify differences in the pension systems in these countries, and to highlight the main challenges they face. The hypothesis is that the pension system in the European countries studied is not a sustainable pension system, assuming that the amount of pension contributions collected is sufficient to pay current pension benefits. Design/methodology/approach: The objective of the article was achieved by verifying secondary sources and conducting a comparative analysis in formal and financial terms. The article draws on literature on social security and social insurance, both in the field of economics and law. The legal sources, materials, and statistical sources were used to present the issues. In addition, materials available on the Internet, including those published by Eurostat, MISSOC, and the OECD, were used in the study. Findings: The data presented in the article concerning two representative countries of the European Union and the financial efficiency indicators of the Polish and German pension systems presented in the article confirm the hypothesis put forward in the article. Contemporary pension systems in highly developed countries are struggling with many problems, mainly resulting from demographic processes. Aging societies and declining birth rates are contributing to changes in the population structure. As a result, there is an increasing need to reform pension systems to adapt them to the current demographic situation. Every pension system reform is a long-term and multifaceted process, and there is no single universal solution that would fully resolve all problems. It is important to take into account the unique demographic, social, and economic conditions of a given country and to rely on broad social consensus. Despite the differences in institutional solutions in individual countries, both the reforms that have been implemented and those merely proposed by the European Union show a common direction of change. This consists of striving to ensure the financial stability of pension systems. More profound changes in the pension systems of European Union member states are inevitable - the pension systems need to be strengthened through broader fiscal reforms, social activation, and increased trust in the system. Research limitations/implications: The topic discussed in the article is very important in the contemporary context due to the financial deficit of social insurance. During the research, certain limitations were observed in access to information, both domestic and international, which could facilitate a more in-depth analysis of the presented issue. Practical implications: The practical consequence of balancing the pension system in Poland - as well as in other EU countries - would be the elimination of the enormous subsidies from the state budget to institutions paying out benefits. Social implications: A country that would not have to subsidize the institutions paying pension benefits could allocate those funds to other important social goals, such as education, public infrastructure, the healthcare system, and so on. Originality/value: By analyzing financing issues in two representative countries, Poland and Germany, identifying differences in their pension systems, and highlighting the main challenges they face, it is possible to better understand the different approaches to pension provision in Europe and their economic effects. Keywords: pension systems, old-age system, financial efficiency of the system, European Union. Category of the paper: Research paper.

Poland introduced a drastic pension reform in 1999, because the growth of the number of pensioners threatened the state budget. It's first characteristic is the adoption of reserve financial scheme in the Polish pension system. The second characteristic is the establishment of private financial companies, which manage the reserve fund of pension system. The third characteristic is the formation of independent pension union in each enterprise. Since the transformation of pension system into the reserve financial scheme is a quite difficult task, the younger generation has to participate in the old pension system partially as well as the new pension system.

Part 1 Introduction - actors, paradigms, and pensions: pensions as efficient contracts - the neoclassical perspective pensions as worker control devices - the Marxist perspective pensions as social institutions - the institutionalist perspective pension policy issues. Part 2 The pension idea: who should provide retirement income - government or business? who got to retire? types of government schemes what employers want from pensions intitial employer pension goals characteristics of the early employer pensions outcomes and contradictions - the new private pension system. Part 3 Social insurance with a union label: unions, pensions, and segmented labour markets union influence on pension coverage outcomes and contradictions - pension bargaining without conflict. Part 4 The employer pension system - distribution and moral hazard: pensions and moral hazard external factors - distribution of pension plan coverage and benefits internal factors - how do pensions affect workers within a plan? a theory about the pension contract portable pensions, SEPs, and distributional equity outcomes and contradictions - toward a mandatory pension system. Part 5 Corporate uses of pension funds: pension contracts and firm default government and the corporate use of pension plans outcomes and contradictions - challenges to corporate use. Part 6 Pension funds and financial democracy: economic power labor's acess to pension fund management competition for the control of capitl prospects for worker capitalism outcomes and contradictions - ownership and strategies. Part 7 What makes a good private pension system?: requirements for an optimum pension system is the pension system consistent with government goals? federal pension law - 1920-1989 most of the costs and some of the benefits of private pensions outcomes and contradictions - the costs of volunteerism. Part 8 Directions for private pension reform: outlook for employer pension policies in the 1990s the likely direction of government policies democratizing the social security trust fund resolving the private pension contradictions.

Demographic and economic aspects of the pension system in Poland —a dynamic modelling approachThe paper considers a hypothesis that some dynamic features of the Polish national and public pension system follow typical mental, generic and archetypal models, as a result of many demographic, macroeconomic, political and also global factors, particularly closed-loop feedback relations with delays and amplifi cations. There are some important messages in the paper for social insurance policies design, structures and management, the meaning of data mining and collection, and for model refi nement with modelling approaches in a systems’ thinking way. The shortcomings of national social insurance systems in dealing more eff ectively with upstream social insurance risk prevention in the population are systemic and include also a postulate to empower members of the population in order to involve them in their own, entrepreneurial downstream care. The paper contains a system dynamics SD point of view, as a method of macroscopic, continuous simulation modelling, to surface and explain some cycles and discrepancies between demography, policies, as well as the system’s aspects of the national pension system. The conceptual, formal and simulation model presented in the paper, followed by some experiments’ results, applies the SD method approach with causal loop diagrams CLD and stock-and-fl ow diagrams SFD, displaying delays, amplifi cations and structure cycle dynamics in the national pension system. Further research should concentrate on the detailed analysis of additional modelling requirements in order to conduct more profound multi-factor experiments to forecast and evaluate contemporary national politics, and to test some new concepts in social insurance.

The open pension funds, functioning from 1999, are under in terms of size the second active bodies (for banks) financial formation influencing the potential of the financial system in Poland. The experiences of many countries show that the investment activity of pension funds belong to the so-called accelerators of the development of the financial market. The value of the investment portfolio management by pension funds determines that their decisions have the considerable influence on functioning of the Polish capital market. The commitment of pension funds on the capital market can have a stabilization function on the economic situation on the market, which is essential for the stability of the financial system especially during the global economic crisis. The aim of the paper is the identification and analysis of the foreseen results of the changes of legal controls in the range of capital pensions for the development of the financial market in Poland.

System zabezpieczenia społecznego w każdym kraju, jeśli istnieje, odgrywa kluczową rolę we wspieraniu obywateli, jednocześnie stanowi duże obciążenie finansowe dla wydatków budżetowych państwa. W Polsce składa się on z systemu ubezpieczeń społecznych i opieki społecznej, systemu ubezpieczeń zdrowotnych, zasiłków dla bezrobotnych i świadczeń rodzinnych, z których wyliczono emeryturę, rentę inwalidzką, ubezpieczenie chorobowe i macierzyńskie, ubezpieczenie od wypadków przy pracy i choroby zawodowe i ubezpieczenie zdrowotne. Celem artykułu jest przedstawienie zmian, jakie zaszły w polskim systemie emerytalnym w latach 1999–2017 oraz wpływu tych zmian na wysokość wydatków publicznych. W badaniu dokonano weryfikacji hipotezy badawczej: często występujące zmiany w systemie emerytalnym mają negatywny wpływ na stan polskich finansów publicznych. Badaniem objęto lata 1999–2017. Podstawowymi materiałami badawczymi wykorzystanymi do przeprowadzenia analizy badań były sprawozdania z realizacji budżetu państwa, dane przygotowane przez Zakład Ubezpieczeń Społecznych oraz dane statystyczne uzyskane z Głównego Urzędu Statystycznego.

The year 1999 marked the beginning of reforms in social insurance in Poland. Changes which were implemented then regarded mainly retirement insurance. Until the reform was introduced, the retirement insurance had operated under a pay-as-you-go system. However, political changes in Poland, as well as adverse demographic trends, led to ineffective functioning of the existing system of financing liabilities arising from retirement insurance. It was necessary to introduce changes that, above all, would allow for maintaining an appropriate level of retirement pension. The following article concentrates on one selected aspect of this insurance - Open Pension Funds (in Polish: Otwarte Fundusze Emerytalne; OFEs) and presents major changes occurring in 2002-2018, their reasons and effects. The analysis is mainly based on data from the Financial Supervision Authority and the Social Insurance Institution.

The main purpose of the submitted article is the estimation of financial investors’ potential in Poland. There are four groups of collective investors on financial market in Poland like Banks, Insurance companies, Investment funds and Open Pension Funds, which have been analyzed. Their importance on financial market and especially on capital market in Poland is still rising. The dynamics of their assets value in 2009 – 2013 periods has been analyzed. Financial investors’ assets and Gross National Product in Poland ratio has been calculated. The influence of the financial crisis and post-crisis time on the investment portfolios structure has been also reviewed.

Within the last few years, the interest in the issues of the systems that are to provide financial security in old age has increased, while the inefficiency of pension systems is more and more often perceived as a global problem. The erosion of pension systems is visible mainly in the countries that transformed their economies into market-based ones. An efficient and effective construction of social security systems to prevent the effects of an increased risk of old age has become an important goal of social policy in numerous countries. In this relation, many countries, not only European ones, have carried out pension reforms but still many face the necessity of changing their pension systems. The aim of the paper is, therefore, a synthetic presentation of selected aspects of the current development of one of the elements of pension systems, i. e. open pension funds, and the problems that accompany this development, basing on the example of one of the countries of Central Europe, namely Poland. Also, the perspectives for the development of these funds are presented.The paper contains, inter alia, the results of a representative questionnaire research carried out in 2007 among the customers of pension funds, as well as among the experts on the financial system in Poland. It seems that Polish experience related to the introduction of pension funds to the Polish market in 7999 and the numerous positive phenomena that accompany their development may constitute one of the patterns for implementing reforms and introducing pension funds in other countries.