Polish Budget Chief Confident Court Won't Undo Pension Revampby
Court to rule on constitutionality of overhaul on Wednesday
Poland stripped funds of $39 billion of government bonds
Poland’s Finance Minister is confident the nation’s top court won’t overturn the cabinet’s 2013 pension overhaul, which reduced government debt by 9 percent of economic output and could throw public finances into disarray if it’s reversed.
The Constitutional Tribunal in Warsaw is set to rule on Wednesday on questions relating to the revamp, including one that could lead to the law’s effective reversal. The government took over and canceled 153.2 billion zloty ($39.3 billion) of its bonds held by privately managed pension funds two years ago, lowering public debt and leaving the funds with stock-heavy portfolios.
A ruling making significant parts of the overhaul illegal could force the government to increase bond issuance and push Poland’s public debt over legal limits, triggering austerity measures. Such a decision, which isn’t the “core scenario” anticipated by Piotr Bujak, an economist at Poland’s biggest lender PKO Bank Polski SA, would have a “drastic negative impact” on economic growth for the next two to three years.
“I’m rather confident about the court’s decision, as the changes in pension funds protect the interests of taxpayers on one hand and those of retirees on the other,” Finance Minister Mateusz Szczurek said in an interview on public radio on Tuesday. “If the whole reform was overturned, a lot of laws will also have to be overturned, not least the debt thresholds.”
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. While former President Bronislaw Komorowski signed the changes into law in 2013, he also asked the court to vet some of its elements including a ban on advertising and investment in government bonds by pension funds. Poland’s ombudsman’s office filed a separate motion to probe whether the overhaul was constitutional.
The government took over and canceled 51.5 percent of assets held by retirement funds, mostly government bonds. The funds, which are privately managed within Poland’s mandatory pension system, were banned from investing in government debt and forced to keep at least 75 percent of their assets in stocks. Poles also had to declare whether they still wanted to save for their retirement in privately managed funds or save for their future pensions in the state-run system.
Poland stopped short of fully nationalizing privately managed pension funds, which Hungary did two years earlier when Prime Minister Viktor Orban’s government took over $13 billion of assets.
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 PKO.