The Private Pensions Day, 5th edition
Sinaia, 27th May 2010
Current issues in the Polish
pension fund market
Dariusz Stańko
Warsaw School of Economics
1
Plan of the presentation
1)
2)
3)
4)
5)
6)
Pension system in Poland
Polish pension funds market
Current situation
Recent government proposals (mainly
Ministry of Labour and Social Policy)
Polish Chamber of Pension Funds (IGTE)
actions
Conclusions
2
1. Polish Pension System

new pension system introduced in 1999

main element of old-age protection framework:
(4 Reforms: pensions, health-care,
administration, education)




covers 14 mln people
does not cover soldiers, prosecutors, miners, police etc.
(non-contributory system)
does not cover farmers (Pension Fund in KRUS - The
Agricultural Social Insurance Fund)
age brackets in 1999:



below 30 – mandatory pillars I and II
30-50 – pillar I or split between I and II
over 50 – stay in the old system
3
1. Polish Pension System



1 pillar: NDC PAYG managed by Social
Insurance Institution (ZUS), mandatory,
12,22% gross wage
2 pillar: DC FF managed by Pension Fund
Societies (PTEs), mandatory, 7,3% gross wage
3 pillar: DC FF, voluntary, some incentives


individual retirement accounts (IKEs) – life
insurance with investment fund, bank account,
investment fund or brokerage account
corporate pension plans (PPEs) – group life
insurance with investment fund, corporate pension
fund, investment fund or foreign provider
4
2. Polish Pension Funds market
as of end of Apr 2010



14 OFEs, rules similar to Romania
over 14,56 m members
AuM: 195,5 b PLN  47,4 bn euro
Aviva OFE Aviva BZ WBK
AXA OFE
Allianz Polska OFE
OFE WARTA
ING OFE
Generali OFE
PKO BP Bankowy OFE
OFE POLSAT
OFE PZU „Złota Jesień”
AEGON OFE
OFE Pocztylion
Amplico OFE
Nordea OFE
Pekao OFE
13,9%
24,3%
7,6%
5,3%
4,4%
4,0%
24,9%
0,9%
2,7%
1,4%
1,6%
1,9%
2,9%
3,9%
5
2. Polish Pension Funds market
Development of the OFE market 1999-2010
16
250
14,36
14
13,13
11,98
12
10,99
11,46
196,52
12,35
200
11,72
178,63
10
140,03
150
138,26
bn PLN
mln persons
14,56
13,82
8
116,56
100
6
4
86,08
members
62,63
assets
50
44,83
2
31,56
19,41
9,92
0
2,21
0,00
May
1999 2000
1999
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
Apr
2010
6
2. Polish Pension Funds market
Asset allocation 1999-2010 (as % of AuM)
100%
0,0%
9,0%
90%
0,4%
0,8%
0,0%
1,4%
1,3%
0,6%
0,7%
0,0%
2,1%
1,7%
1,0%
1,5%
2,0%
2,0%
2,2%
2,8%
2,2%
2,9%
2,5%
3,7%
2,2%
3,8%
4,9%
3,9%
0,1%
1,3%
2,1%
1,1%
1,2%
1,7%
0,4%
1,9%
1,4%
5,3%
5,3%
14,5%
12,7%
80%
70%
58,6%
65,0%
60%
65,6%
60,8%
58,4%
61,6%
62,2%
59,8%
73,4%
51,9%
57,3%
Foreign
Bank sec. and dep.
NonT debt
T Bonds and bills
Shares
50%
40%
61,8%
69,2%
30%
20%
29,1%
32,6%
27,7%
27,3%
32,0%
33,1%
31,6%
34,3%
34,8%
30,6%
32,9%
2009
Apr
2010
21,6%
10%
6,7%
0%
May
1999
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
7
2. Polish Pension Funds Market

returns
1999 (since Sept.)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010 (till end of Apr.)

Nominal rate of
return in the
period
14,1%
13,0%
5,7%
15,3%
10,9%
14,2%
15,0%
16,4%
6,2%
-14,2%
13,7%
5,8%
Real rate of
Value of
return in the
accounting unit
period
(in PLN)
3,9%
11,51
4,2%
13,01
2,0%
13,75
14,4%
15,85
9,1%
17,58
9,4%
20,08
14,2%
23,09
14,8%
26,88
2,1%
28,55
-16,9%
24,51
9,9%
27,88
4,1%
29,50
since September 1999 until end of April 2010:




total nominal return: 195,0%
total real return: 106,4%
average nominal return: 10,68% p.a.
average real return: 7,03% p.a.
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2. Polish Pension Funds Market
Performance of OFE funds vs NDC system (ZUS)
blue – indexation in ZUS (NDC system)
red – market share weighted average of OFEs
(FDC system)
Source: Sołdek, Andrzej (2010). Jak OFE zarządza naszymi składkami [How OFE manage our contributions],
PTE PZU S.A., presentation for the KPP conference of 4 February 2010, Warsaw.
9
2. Polish Pension Funds Market

up-front fee: 3,5%




before 2004 no legal ceilings, loyalty schemes
2004: ceiling on 7% with gradual decrease towards
3,5% by 2014
2010: ceiling brought down to 3,5% (incl. ZUS – 0,8%)
management fee: month
Value of assets under
management (in m PLN)
8 000
8 000
20 000
20 000
35 000
35 000
45 000
45 000

Montly asset management fee
0,045% of AuM
3,6 m PLN plus 0,04% of the excess over 8 000 m PLN
8,4 m PLN plus 0,032% of the excess over 20 000 m PLN
13,2 m PLN plus 0,023% of the excess over 35 000 m PLN
15,5 m PLN
switchover fee (in cash):



plus max. 0,005% AuM
(per month)
160 PLN (if < 1 year),
80 PLN (if <2 years but > 1 year),
0 PLN (if > 2 years)
bp
45,0
42,0
37,7
34,4
< 34,4
10
3. Current situation






public annoyance: financial crises losses in 2008 yet
PTEs earned 586 m PLN in 2008 and 640 m PLN
in 2009 as management fees
search for money (use of Demographic Reserve Fund)
political action towards reduction of contributions
KRUS (agricultural system)
Eurostat problem: classification of funded savings
questioning the sense of the pension reform:
„roulette of the capital market” (professor of the leading
economic school)
 „When I am to choose between the interests of 14 PTEs and
the interests of 14 fund members, I shall choose the latter”
(Minister of Labour and Social Policy)
 „vagaries of the financial market” (Ministry of Labour and
Social Policy, justification to the proposal of pension law
11
amendment)

4. Government proposals


to cut the funded contribution from 7% to 3%
to allow OFE members aged 65 and above to
withdraw pension savings in a lump sum or in
instalments (up to 10 years):
full OFE account if pension entitlements accumulated in
ZUS grant them 200% of minimal pension or
 part of the OFE account; another part goes to ZUS to cofund the above condition, the rest





to allow OFE members at 5 years to retirement to
move part or all of their savings to ZUS
to create a ZUS-like state annuity provider
to make the OFE voluntary
to introduce the „Canadian” system

contribution 120 PLN  pension 1 200 PLN
12
5. IGTE actions


media and information campaign
telephone polls amongst the OFE members
1/5 knows the issue, 43% „knows something”
 22% are for or „somehow for” reduction of the
contribution, 59% are against or „strongly against”
 75% believe this is „a stick-up note” action of the
government to get quick cash
 52% believe OFE are „rather” or „definitely” more efficient
than ZUS




open letter to the Prime Minister
legal analyses (unconstitutionality of the proposals)
proposals of investment law improvements,
multifunds system, external benchmark and high
watermark fee system, improvement of acquisition
system
13
6. Conclusions

increasing political risk to funded systems




fighting populism requires investing in pension
education





Argentina (nationalization)
Slovakia (return guarantees, fee cuts, opt-outs, voluntary
participation)
Poland (FRD case, fee cuts, current proposals)
media
population
message about demography should be made widely
heard
better co-operation of pension associations?
Eurostat story will keep EU-12 from revealing their
pension debts
14