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Government adopts controversial pension reform


The government on 8 March approved a far-reaching reform of the country’s pension system intended to reduce the borrowing needs of the state and prevent public debt from reaching 55% of GDP. It does not depart much from the original proposal outlined in late December, despite several weeks of consultations, and again drew a mostly critical response from economists and employer groups. The reform is to be pushed through Parliament and submitted for the President’s signature by the end of the month, so that it may take effect on 1 May.

At the heart of the reform is a decision to substantially reduce payments to open (i.e. private) pension funds (OFE), and to divert a bigger chunk of mandatory contributions to the state system. Under the proposal, as of 1 May payments to private funds will be reduced to 2.3% from 7.3% of the gross salary, with the remaining 5% transferred into newly-created sub-accounts within the state system (at the Social Insurance Office, ZUS). By 2018 the private chunk will gradually go up again, but only to 3.5%. The payments made to the new sub-accounts will be adjusted each year for inflation and economic growth, and will be inheritable. As a result, the government’s borrowing needs will be slashed by PLN 190bn (approx. €48bn) by 2020, the government calculates.

At the same time, to soften the impact for private pension funds, in 2012 the government will introduce a special tax break equal to 4% of taxable income for persons making extra voluntary contributions to pension funds or to mutual funds. Furthermore, the OFE will get a freer hand to invest in equities, with the relevant ceiling to be lifted gradually from 40% of assets at the moment to 90% after 2020.

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