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Poland Wants to Increase Savings by $6 Billion a Year

Updated on
  • Retirement plan to help boost savings and Warsaw’s capital hub
  • Government needs more time to revamp existing pension funds

Poland’s government is drafting a voluntary, employer-provided pension program that its author says will boost the country’s savings by 20 billion zloty ($6 billion) a year and strengthen Warsaw’s capital market.

Pawel Borys, the architect of the program who’s also the head of the state’s development fund, told Bloomberg the government proposal may take effect from the start of next year. The plan is set to be the first stage of a bigger industry revamp, with the cabinet also preparing to overhaul the existing system of pension funds, which manage $54 billion in assets, including 43 percent of the Warsaw bourse’s free float, he said.

“We want to address the very-low saving rate among Poles,” Borys, 40, said from his office in central Warsaw. “This is a key element for building a capital market hub and spur innovation in this part of Europe.”

Negative Savings

Savings rate of Polish households is among the lowest in Europe

Source: OECD

Latest available data, for 2016 or 2015

The government outlined its plans on Thursday and started a process of public consultations for the proposals, which still face final cabinet and parliamentary approvals. Borys said the proposals received positive reviews from several international investors, who likened it to the U.S.’s defined-contribution 401(k) plan and the U.K.’s workplace pensions system.

“The new pension scheme can be positive for Polish equities in the longer term, but key to success will be to convince Poles to stay in the program,” Lukasz Janczak, an analyst at Ipopema Securities SA brokerage, said in a research note. Risks include squeezing company margins by effectively increasing labor costs, he said. If the plan is a success, it can also entice the government to “take over more assets” from existing pension funds.

The retirement revamp, whose details first appeared in 2016, is set to be the first bigger economic legislation drafted by Prime Minister Mateusz Morawiecki, who took over from a party colleague in December. The western-educated former bank executive was tasked with keeping Poland’s economy growing while softening the government’s international conflicts, including its rule-of-law row with the European Union and clash with Israel over alleged Polish complicity in the German Nazi extermination of Jews during World War 2.

The proposal includes the following points:

  • Poles will be signed into these pension plans by default to help boost participation rates and scale of savings, while given an opt-out; plan assumes 75 percent of 11.4 million entitled Poles will stay in
  • Annual savings seen at 15 billion to 20 billion zloty a year after full implementation, with 6 billion zloty in the first year
  • To be launched gradually, starting with companies employing at least 250 people
  • Envisages employees putting aside 2 percent of their salaries on tax-free retirement accounts, with employers adding another 1.5 percent of their workers’ income; both parties may voluntarily opt for additional saving of 4.5% of salary
    • The government will offer bonuses to those in the program totalling 1.1 billion zloty in 2019, rising to 3 billion zloty a year in following years
  • Employers will be responsible for picking asset managers and investment strategies from products offered on the Polish market; draft sees 30% cap on foreign investments
    • Providers of new retirement plans to offer target-dated funds as part of portfolio; plan sets max fee level for asset managers in plan at 0.6% of assets
  • Government expects new accounts may reflect similar asset class structure as existing mutual funds: with roughly 30 percent in equities, 30 to 40 percent in government bonds and the rest in other assets, including corporate debt

Borys said the revamp of the existing pension funds will be detailed at a later date. Two years ago, equity investors focused much on the government’s broader plan to transfer 75 percent of the funds’ assets to individual retirement accounts, and giving the rest to the state’s demographic reserve fund. The main elements of that scenario “remain unchanged,” Borys said.

(Updates with comments from analyst, details from fifth paragraph.)
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