Poland Proposes to Overhaul Private Pensions

Move, aimed at helping the budget deficit, will remove assets from non-government funds.

The Polish government wants to shrink its budget deficit, so it’s looking to revamp its private pension system, known as OFE, which runs a big chunk of the nation’s retirement plan.

The proposal calls for shifting the 162 billion zloty ($43 billion) OFE retirement funds into individual accounts, which would result in the state-owned social security system paying a one-time 15% fee. Prime Minister Mateusz Morawiecki ( and his cabinet say the reform is neutral for Poland’s stock market, which has seen better days.

The decision modifies a roughly 20-year-old concept where private pensions invested some of the state-owned programs assets. However, it is not the first time the OFE system has been altered. In 2014, the nation’s officials took over government bonds held by private plans in a bid to shore up public debt. This decision battered Poland’s market. The bonds consisted of more than half the OFE’s assets, according to Bloomberg.

Changes to the OFE system have been long-planned by the government, as the assets are currently owned by outside managers such as MetLife. Although it knew it wanted to privatize the funds and keep them domestic, it was unsure of how to redistribute them. 

By moving OFE assets into 15.8 million personal pension accounts, the new plan reduces the risk of the government again grabbing more of these assets. Analysts also say it will help with the state budget deficit by keeping it below the European Union’s 3% of gross domestic product limit.

Poland’s markets reacted so-so to the news. The WIG20 index dropped 0.7% after Morawiecki’s address and closed -0.36% for the day, while two-year government bonds picked up in price, pushing the yield down 5%, to 1.62%.

Poland’s pension problems will continue to mount due to the nation’s low birth rates, one of the lowest in the European Union.  That’s coupled with an aging population that did not save enough money under communism. As each generation readies for retirement—the eligibility age was reduced in 2017 to 65 for men from age 67, and to 60 for women—there aren’t enough new workers ready to replace them, which only adds to the nation’s problems.

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