Poland Won’t Cut Pension Funds in Review, Rostowski SaysPiotr Skolimowski and Konrad Krasuski
Poland has no plans to scrap its privately managed pension funds as it reviews a system that’s weighing on the state budget, Finance Minister Jacek Rostowski said today.
“The intellectual system that has underpinned the pension funds has turned into rubble,” Rostowski told TOK FM radio in an interview today. “We need to find a way to lead Poland out of this trap.”
The state may gradually shift pension-fund assets to the social-security system for people due to retire within at least 10 years, Rzeczpospolita reported today, citing recommendations by the Labor Ministry. It may also scrap fees the funds charge for contributions, the newspaper said. The proposals are among “versions” being analyzed, Janusz Sejmej, the ministry’s spokesman, said today.
The review of the privately managed pension system comes as the European Union’s largest eastern economy battles its steepest slowdown in 12 years. Contributions to the plan have reduced funding for the pay-as-you-go state system that pays current retirees, forcing the government to cover the shortfall through bond sales.
The government has pledged to narrow its budget deficit and is trying to keep public debt below 55 percent of economic output, a level that would trigger austerity measures.
The 14 funds, which are run by companies including ING Groep NV and Aviva Plc, have grown to $85.4 billion in assets since they were set up in 1999. The mandatory contributions they receive are then invested in stocks, cash and government bonds. Pension funds held 114.6 billion zloty ($36.4 billion) of government securities at the end of February, or 21 percent of the total.
Two years ago, Hungary took over $13 billion in privately managed pension assets to meet EU-imposed deficit goals and cut debt by canceling government bonds held by funds.
The Polish government in 2011 reduced cash transfers to funds to 2.3 percent of a worker’s pay from 7.3 percent to help narrow the budget gap. It also pledged to gradually increase the level of contributions to 3.5 percent in 2017.
Measures similar to those adopted two years ago “would boost short-term fiscal revenues, while exposing the sovereign to larger future contingent liabilities,” Jaime Reusche, an analyst at Moody’s Investors Service, said in an April 12 report. The changes would be “neutral for the sovereign’s rating.” Moody’s rates Poland A2, the sixth-highest investment grade.
The government will announce its decisions about the pension system by the end of June based on changes proposed by the Labor Ministry, Prime Minister Donald Tusk said last week.
“We’re still far from final proposals and the talks are still ongoing,” Labor Ministry spokesman Sejmej said by phone from Warsaw today. “Our draft document should be ready at the beginning of May.”