Morawiecki wants a new pension system

After Jarosław Kaczyński announced that the ruling Prawo i Sprawiedliwość [Law and Justice] has some far-reaching ideas regarding the existing pension system, the Deputy Prime Minister Mateusz Morawiecki held a press conference to calm the investors and shed some light on the reform program the party is working on.

The politicians want to overhaul the existing system of OFEs (pension funds), the so-called “second pillar” of the pension system, and move the money to the “third pillar” consisting of IKEs and IKZEs, individual pension saving accounts. The obligatory “second pillar” is viewed by the ruling party as ineffective. The money in the system should be put to good use, they say.

The current pension system is ineffective and needs heavy support from the state budget. Future pensions will certainly be very low.

If the government’s vision comes to life, the existing OFEs will be got rid of completely. 75% of the money are to be moved to the “third pillar” and the remaining 25% are to be moved to Demographic Reserve Fund.  The Fund is a buffer against negative demographic trends.

Morawiecki stresses that this move is not nationalization, yet the facts demonstrate otherwise. The act will bring down the national deficit by around 2%, economic experts claim.

Pension funds are to be replaced with Employee Capital Plans in which the state, the employers and the employees will participate and jointly accumulate retirement savings. It seems it will be similar to the American 401(k) plan. The funds will not be accessible before a person retires, unless they are to be used for combating serious health issues.

Moreover, the government intends to simplify the existing “third pillar” of voluntary individual pension savings accounts, create “Polish REIT” (real estate investment fund), introduce new types of state bonds, and lower the existing capital gains tax.

The reforms are to give Poles stability, raise their future pensions, boost investments and the country’s development, and bring administrative costs down. However, the reform still remains a work in progress. No specific details have been revealed yet.

Polish citizens do not have much savings when compared with other European nations. Today, just a fraction of Polish people save money with retirement in mind.  This is especially concerning taking into consideration the looming demographic crisis. Soon, large numbers of pensioners are to be supported by small numbers of the employed. For the pension system, this is a catastrophe.