Poland’s forced transfer of more than half the second pillar’s pension assets to the state social security fund (ZUS) undermines trust in its pension system and could harm the credibility of future reforms, the OECD has said.

The think tank also warned that the changes – which will see the open pension funds’ (OFE) ability to invest in fixed income restricted – could cut “already low future replacement rates”.

The report, part of the OECD’s regular economic surveys of its member states, continued: “Another result of the recent reforms will be somewhat less liquidity on the domestic Treasury bond market.

“Moreover, the cancellation of the OFEs’ Treasury bond holdings increased the share of non-resident investors in zloty-denominated public debt and curtail the participation of local investors with a long-term investment horizon.”

The OECD noted only two advantages of the transfer of assets, driven largely by the government’s desire to address increasing public debt perceived to be the result of second-pillar reforms that diverted part of the population’s pay-as-you-go contributions into the OFEs.

It said the “upsides” would be a reduction in debt-service payments and a fall in “high” OFE operating costs, although it speculated that a reduction in management costs could have also been achieved through better regulation of the funds forming the second pillar.

However, overall, its view of the pension changes seemed negative.

“The combination of the 1999 reform and its partial reversal might well damage social trust in the pension system and harm the credibility of future structural reforms more broadly,” the report said.

Plans to overhaul the structure of the pension system first became public last summer, as the government considered how best to design the 15-year old system’s payout phase.

At the time, the Polish Chamber of Pension Funds (IGTE) alleged that the information used by the government to make its case was “false and dishonestly presented”.

Polish president Bronisław Komorowski nevertheless signed the controversial bill into law at the beginning of January.

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