Poland’s pensions system is set for a dramatic overhaul that spells the end of the second-pillar (OFE) system.

Mateusz Morawiecki, development minister and deputy premier, announced at a press conference today at the Warsaw Stock Exchange that the government plans to transfer three-quarters of the savings held in the OFEs to the third pillar, and the remainder to the Demographic Reserve Fund (FUS), the fund set up in 2002 to cover shortfalls in first-pillar payments.

Morawiecki denied the plan represented a nationalisation of the system, describing it rather as a transfer of public funds to the Polish people themselves.

The current OFE system, the government believes, is neither effective nor workable.

Largely as a result of the ‘slider’ reforms, net outflows from the funds to the state Social Insurance Institution (ZUS), exceed inflows. The slider was previously introduced as a payout phase reform to incrementally transfer the OFE savings of those with 10 or fewer years left before retirement to ZUS.

According to the development ministry’s projections, this deficit is set to rise from PLN1.8bn (€406m) in 2016 to PLN4.6bn by 2025.

According to the government’s timetable, of the PLN140bn accumulated in OFE schemes, PLN103bn would be transferred, as of 1 January 2018, to individual retirement accounts (IKEs), with each saver receiving the same amount, around PLN6,300, irrespective of how much they had saved thus far.

Most Poles do not have an IKE, a vehicle offered by Polish pension fund companies, as well as insurance companies, banks, brokerages and investment fund companies.

As of the end of 2015, just under 859,000 had been set up, compared with some 16.5m OFE accounts, including around 2.5m where members are continuing to contribute.

The remaining PLN35bn that would subsequently move to FUS would consist of assets other than Polish equities, thus avoiding any charges of nationalisation.

The third leg of the plan involves a new, employment savings system, Workers’ Capital Plans (PPKs), with employers and employees each contributing 2% of wages into the plans.

If the participants add a further contribution, of 1% from employers and 2% from employees, a PPK would receive a “welcome sweetener” of PLN250,000.

The development ministry estimates that the revised system would increase eventual pension payouts from an average third of the final salary to a half.

Morawiecki did not explain how a transfer of funds from the second pillar to the third would improve the capital financing called for in his Responsible Development Plan announced in February.

Morawiecki’s announcement followed on from a weekend beset by intensifying speculation over the future of the OFEs.

On Saturday Jarosław Kaczyński, speaking after his unopposed re-election as leader of the ruling Law & Justice (PiS) party, said the government had to address the problem of OFE funds, which were losing value but could be used to fund projects that would benefit Polish households.

Separately, Reuters reported that seven medium-sized WSE-listed companies in which OFEs held a high share were planning share buybacks as a defence against changes in the pensions system that could lead to their having the state as a significant stakeholder.

Reuters named two companies, debt collector Kruk and property developer Robyg.

Concern over a radical overhaul started in May following a report that the government planned to merge the OFEs into a single fund managed by state insurer PZU, a move that would have given the state significant voting rights in some of Poland’s major listed companies.

In one of the first defensive responses, in June, the US fund Media Development Investment Fund bought an 8.3% voting share in Agora, the largest Polish listed publishing company.

Agora’s flagship newspaper Gazeta Wyborcza is fiercely critical of the current government and has suffered the consequences with a loss of state institute advertising, as well as pressure on PZU’s pension fund to pull out.

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