The Polish Pension Reform After Six Years

1. The Polish Pension Reform After Six Years István P. Székely IMF, European Department

2. The 1999 Pension Reform • Terminated the old system for those born after 1948 • In the new system it created two accounts: • Notional Defined Contribution accounts. • Funded Defined Contribution accounts in open pension funds (OFEs), which are privately managed. • Third pillar: Private accounts. • Mandatory retirement age unchanged, but effective retirement age expected to increase • Total contribution rate unchanged but shared between employer and employee differently and part of the contribution to is transferred to OFEs.

3. Fiscal impact of the reform

4. Slippages Since 1999

5. Slippages Since 1999

6. Slippages Since 1999

7. Slippages Since 1999

8. OFEs: Declining Coverage

9. OFEs: Structure of Investment

10. Impact on Government Savings

11. Conclusions • The 1999 pension reform was a major effort toward restoring the long-term stability of public finances, but less-favorable-than-envisaged developments since then resulted in less progress than targeted. • Owing to a decline in employment, the coverage of the pension system has declined. • This and a faster-than-previously envisaged increase in the real value of pensions have resulted in a significant deterioration in the long-term financial position of the first pillar. • For the same reasons, and because of high youth unemployment, the accumulation of pension savings in the second pillar has remained limited.

12. Conclusions • These developments suggest a need for measures to strengthen the long-term financial position of the pension system and reduce the risk of old-age poverty: • The most effective way: promoting employment • Broadening the base for social security contributions, in particular for self-employed • Promoting higher voluntary private pension savings