Polish Parliament Approves Pension-Fund Revamp to Cancel Bonds

Polish lawmakers today approved the takeover and cancellation of government bonds held by privately managed pension funds, allowing the cabinet to cut state debt and gain leeway for public spending.

Lawmakers in the 460-seat Sejm, the lower house of parliament, voted 232-216 in favor of the changes, with one abstention. The draft law must still be approved by the Senate and signed by President Bronislaw Komorowski, who may direct it for legal review to Poland’s Constitutional Tribunal.

The legislation empowers Poland to take over 51.5 percent of assets, mostly government bonds, held by 14 pension funds effective Feb. 3. The step would reduce public debt by 9.2 percentage points of economic output, according to Finance Ministry estimates. Funds would also be banned from investing in government debt starting in 2016.

“We’re proposing this measure out of a sense of responsibility for current and future retirees, public finances and financial markets,” Labor Minister Wladyslaw Kosiniak-Kamysz told parliament before the vote.

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. Opposition lawmakers protested that parliament has had only three days to discuss the legislation and proposed 1,017 amendments. The overhaul is opposed by 53 percent of Polish voters, according to a Nov. 7-14 poll by Warsaw-based researcher CBOS.

Constitutional Vetting

The revamp will probably end up being vetted by the country’s constitutional court after president signs it into law, Dariusz Rosati, the chairman of parliament’s public finance committee, said in a Nov. 18 interview.

The changes are “necessary for financial safety,” Komorowski said on Nov. 28, signaling that he will sign the bill into law if approved by lawmakers.

Pension funds in the mandatory system held 303.4 billion zloty ($99 billion) of assets, including 131.1 billion zloty of stocks and 125.8 billion zloty of bonds as of Oct. 31, data from Poland’s financial markets regulator show. The owners of companies running the funds include Aegon NV, Allianz SE, MetLife Inc., Aviva Plc, AXA SA, Assicurazioni Generali S.p.A., ING Groep NV and Nordea Bank AB.

Minister Absent

Poland’s three biggest opposition parties, Law & Justice, the Democratic Left Alliance and Janusz Palikot’s Your Move, all voted against the measure. Deputies complained about the absence from parliament of Finance Minister Mateusz Szczurek, who had criticized the pension changes before he joined the government last month.

“We’re facing the most important vote of this parliamentary term that will determine what happens to 150 billion zloty of retirement savings,” deputy Wincenty Elsner of Your Move told lawmakers. “Where is the finance minister?”

Szczurek was at work preparing for next week’s parliamentary debate on the 2014 budget and a meeting of EU finance ministers, Finance Ministry spokeswoman Wieslawa Drozdz said by phone.

The zloty weakened 0.1 percent to 4.1927 against the euro at 11:35 a.m. in Warsaw, paring its quarter-to-date gain to 0.7 percent, the best performance among 24 emerging-market currencies tracked by Bloomberg. The 10-year government bond yield fell one basis point, or 0.01 percentage point, to 4.58 percent, sliding for the first time in five days after reaching the highest level since Sept. 10.

Budget Surplus

The government has already included the pension-fund changes in its 2014 budget, which will run a 4.6 percent of GDP surplus as a result of the asset transfer, according to a Nov. 5 forecast by the European Commission.

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.

Poland is the only European Union economy to avoid recession since the crisis began in 2008. Still, the government opted for the partial takeover of funds as public debt swelled past a constitutional limit of 50 percent of GDP.

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.

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