Polish President Signs Pension Overhaul Into Law, Seeks Review

President Bronislaw Komorowski will ask Poland’s constitutional court to vet the government’s pension-system overhaul after signing the long-debated measure into law.

“Opinions on the law are contradictory and even mutually exclusive, and that’s why the president decided it should be sent for review,” Krzysztof Laszkiewicz, a minister in the President’s Office, said at news conference today in Warsaw.

Komorowski’s decision allows the government to take over and cancel 51.5 percent of assets, mostly government bonds, held by 13 pension funds effective Feb. 3. The step will reduce public debt by 9.2 percentage points of gross domestic product while producing a budget surplus of 4.6 percent of economic output next year, according to Finance Ministry estimates.

The government-sponsored changes to the country’s three-tier pension system have sparked controversy, including concern that canceling bonds would amount to uncompensated expropriation. Komorowski called the change “a step back on Poland’s reform path” and said confirming its legality was “very important,” according to a Dec. 23 interview with Rzeczpospolita newspaper.

Erode Trust

Komorowski is concerned that the government-sponsored changes, especially the ban on bond-buying and new minimum levels for stock holdings, could erode public trust and unduly interfere in free enterprise, Laszkiewicz told reporters.

Prime Minister Donald Tusk’s cabinet decided on a partial takeover of pension funds as public debt swelled past a legal limit of 50 percent of GDP amid the worst slowdown in more than a decade in the European Union’s largest eastern economy.

Cutting the debt gives the government leeway to increase public spending in the run-up to general elections in 2015. The country stands to receive 107 billion euros ($144 billion) from the EU’s 2014-2020 budget.

Preserving fiscal stability was the main reason Komorowski decided to sign the law, Laszkiewicz said, adding that the president had asked Tusk and Finance Minister Mateusz Szczurek to present proposals for “structural reforms” to keep the country’s finances sound.

Opposition Protests

Parliament approved the pension overhaul earlier this month over the protests of opposition parties, who complained that deputies had only three days to discuss the legislation. The revamp is opposed by 53 percent of Polish voters, according to a Nov. 7-14 poll by Warsaw-based researcher CBOS.

The decision stops short of fully nationalizing privately managed pension funds, which Hungary did two years ago. The government of Prime Minister Viktor Orban took over $13 billion of assets.

Privately managed funds in Poland’s mandatory pension system held 305.8 billion zloty ($101.8 billion) of assets as of Nov. 29, including 132.9 billion zloty of stocks and 127.2 billion zloty of bonds, data from Poland’s financial markets regulator show. The owners of companies running the funds include Aegon NV (AGN), Allianz SE (ALV), MetLife Inc. (MET), Aviva Plc (AV/), AXA SA (CS), Assicurazioni Generali S.p.A., ING Groep NV (INGA) and Nordea Bank AB. (NDA)

Bond Ban

The funds would be banned from investing in government debt starting in 2016 and will have to keep at least 75 percent of their assets in stocks by the end of next year.

Poles will have four months to declare whether they still want to save for their retirement in privately managed funds, according to the revised plan. They’ll be able to review their decision in 2016.

While the president may decide to send the bill for constitutional vetting, his decision won’t have any impact on the 2014 budget, Dariusz Rosati, the chairman of parliament’s public finance committee, predicted in a Nov. 18 interview.

“The tribunal’s rulings so far suggest that even when it rejects a law, it also suggests steps that would help avoid any negative impact on public finances,” Rosati said. “Even if that were to happen, the decision shouldn’t be expected before the middle of next year.”

To contact the reporter on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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