Transcript 18_marek_gora_1

Open Pension Funds:
A Part of Social Security in Poland
Marek Góra
Warsaw School of Economics
FIAP conference, Warsaw, May 2009
Initial comments
 The new system replaced the old one on 1st Jan
1999. The old one was terminated.
 The entire new system is based on DC regime in
accumulation phase and annuitization in the
payout phase.
 The new system remains a part of social
security irrespective to public or private
management of its parts.
 The new system is similar to the new Swedish
system (launched on the same day as the Polish
one).
2
Key goal of the new system
 Providing entire working population with a
secure method of income allocation that
involves the least part of their disposable
income.
3
Goals of the new system (entire)
 Intergenerational equilibrium (equally valuated
welfare of all generations; GDPR/GDP=const.).
 Diversification of risk (better absorption of
financial and economic shocks – Security
through Diversity).
 Individual instead of anonymous participation.
4
Effects of the new system
implementation
 The system is transparent at both individual and
macro levels.
 The system automatically adjusts ex ante
instead of discretional adjustment ex post.
 Pension system debt ceased to increase above
ability of the system to serve the debt without a
need to increase contributions or taxes
[PV(B)=PV(B)].
 Production factors remuneration growth is not
constraint by growing pension expenditure .
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Intergenerational equilibrium
R2/GDP2 = R1/GDP1
GDP2
or
GDP1
T1
R1
R2/GDP2 < R1/GDP1
GDP1
T2
R2
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Common misunderstandings
 Implementation of pension funds (OFE) was not
the essence of the reform.
 Pension societies are private but pension funds
they manage are public, which is a kind of PPP.
 Entire new system based on individual
accounts.
 ZUS is a public pension society that does not
use financial markets.
 Benefits (in terms of the replacement rate) do
not depend on any particular type of pension
system (z = c/d; where: d=LR/LW).
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Current disputes
 Public discussion is focused on the OFE/PTE part
of the system that is the most „sexy” for
politicians and the general public.
 The micro perspective dominates while the
macro perspective is commonly lacking.
 Costs of participation (contributions) vs. costs
of service (fees) [„elephant” and „ant”].
 The crisis vs. the long-term goal of the system.
 Rates of return in both parts of the system.
 First payouts.
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Diversification of risks
 The finansial crisis provides the best
justification for the decision to split the new
system into two parts of which one is directly
linked to the real economy (NDC accounts) and
the other one (FDC accounts) is linked to the
real economy via financial markets.
 For a couple of years rates of return in the FDC
part of the system were higher, while now rates
of return in the NDC part are higher. That
pattern will repeate many times in the future.
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First payouts
 The entire new system pays one benefit. It can
be broken into parts, namely:



A part based on the initial capital left over by the
previous (terminated) system [this part will disappear
in the future];
An NDC based part;
An FDC based part.
 Focusing on particular parts may be interesting
but can also mislead the public, which is exactly
the case in Poland now.
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Benefits (replacement rate)
Dcw  L
W
S  zwL
R
1
zc
d
LR
(d  W )
L
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Regulatory adjustments
 Ongoing adjustments of regulations are and will
be necessary.
 Regulatory adjustments do not (should not!)
change the principles.
 The adjustments should contribute or be neutral
to the social goal of the system.
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Priorities of activities regarding the
pension system
 First, from the direct participants’ viewpoint:



Large scale public education;
Creation of pre-retirement subfunds;
Fee level and structure (including separate regulations
on fee parts financing PTE servicies and other parties’
servicies).
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Priorities of activities regarding the
pension system
 Second, from the market viewpoint:




External instead of internal benchmark;
Passive secondary acquisition;
Investment limits;
Precausionary regulations.
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Spcoal goals and financial markets
 The new pension system aims at synergy of
financial markets and social policy.
 Public discussion is led as if the two were
„distant planets”.
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Pension expenditure in terms of
GDP (%)
2004
Belgium
Czech Republic
Denmark
Germany
Estonia
Greece
Spain
France
Ireland
Italy
Cyprus
Latvia
Lithuania
Luxemburg
Hungary
Malta
Netherlands
Austria
Poland
Portugal
Slovenia
Slovakia
Finland
Sweden
UK
2025
10.4
8.5
9.5
11.4
6.7
n.a.
8.6
12.8
4.7
14.2
6.9
6.8
6.7
10.0
10.4
7.4
7.7
13.4
13.9
11.1
11.0
7.2
10.7
10.6
6.6
2050
13.4
8.9
12.0
11.6
5.1
n.a.
10.4
14.0
7.2
14.4
10.8
5.3
7.6
13.7
13.0
10.0
9.7
13.5
9.5
15.0
13.3
7.3
13.5
10.7
7.3
15.5
14.0
12.8
13.1
4.2
n.a.
15.7
14.8
11.1
14.7
19.8
5.6
8.6
17.4
17.1
7.0
11.2
12.2
8.0
20.8
18.3
9.0
13.7
11.2
8.6
Δ(2050-2004)
5.1
5.6
3.3
1.7
-2.5
n.a.
7.1
2.0
6.4
0.4
12.9
-1.2
1.8
7.4
6.7
-0.4
3.5
-1.2
-5.9
9.7
7.3
1.8
3.1
0.6
2.0
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