Poland’s voluntary second-pillar pension funds (OFEs) returned a weighted average 12-month return of -1.13% as of the end of September, according to the Polish Financial Supervision Authority (KNF), compared with -5.92% a year earlier and -6.63% this March.

Unlike last March and September 2015, when all the 12 OFEs reported negative returns, five funds this time produced positive results, with Pocztylion, at 1.07%, generating the highest, and Generali, at -3.17%, the lowest.

While the 12-month returns benefited from an upturn in the performance of the Warsaw Stock Exchange (WSE) since July, the three-year returns were less impressive, shrinking to an average 0.13% from 6.34% in March and 12.72% last year as a result of earlier losses.

The OFE returns also compare poorly with increases in both the state pension paid by the first-pillar Polish Social Insurance Institution (ZUS) and the ZUS sub-accounts nominally holding assets earlier transferred from OFE accounts.

The former, indexed to inflation and wage growth, rose by 5.3% last year, while the latter, based on positive average GDP growth, grew by 4.3%.

As reported previously, since the 2014 reforms, the OFEs have become essentially equity funds dependent largely on the WSE’s performance.

As of the end of September, Polish listed equities accounted for 75.3% of aggregate portfolios, followed some way behind by bank deposits (7.7%), foreign equities (6.9%) and domestic listed bonds (5.1%).

Net assets fell by 1.7% year on year to PLN142.8bn (€33bn).

The shrinkage was due not only to investment losses but the ‘slider’ mechanism, introduced in 2014, which incrementally transfers the savings of those with less than 10 years left to retirement to an individual’s ZUS sub-account.

In the first nine months of 2016, the slider removed PLN2.6bn of assets, against the ZUS transfers of PLN2.2bn into the OFEs of the 15% or so of members still continuing to contribute to the second-pillar system.

Membership declined by 0.7% to 16.46m.

During the last four-month transfer window, which ended in July, some 88,000 workers chose start or restart contributing, against less than 67,000 who chose to stop.

Any renewed interest in the OFEs, notably from new entrants to the labour market, was cut short in early July when Mateusz Morawiecki, development minister and deputy premier, announced an overhaul of the system that would transfer 75% of current second-pillar assets into private third-pillar accounts, and the remainder into the demographic reserve covering first-pillar shortfalls.

This has yet to be presented as a draft bill to parliament but will have to be enacted by the end of the year in line with the current legislation’s three-yearly review of the country’s pension system.

One potential obstacle is Poland’s Constitutional Tribunal, which earlier ruled that OFE assets are public, not private, monies.

Morawiecki, whose earlier Responsible Development Plan is based partly on private capital financing, is likely to carry the rest of the government with him; in late September, following a government reshuffle, he additionally took over the position of finance minister.

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