How compose the pension fund portfolio in Poland?

Demographic trends over the past decade will result in situation that there would be fewer people producing goods and services  to support the population that includes many more retired people. These trends have been also faced by economies of Central and Eastern Europe that in addition have been suffering from consequences connected with early transition period when the policy of early retirement was introduced as a reaction to huge unemployment that appeared during privatization and restructuring enterprises.

Poland introduced the new pension system in 1999 because of high pension expenditures (in 1995 exceeding 15% of GDP) and projecting ageing of Polish society. The path chosen by Poland was to replace the pay-as-you-go (PAYG) system, that was redistributive system, with a multi-pillar system. There are three pillars and each of them is exposed to the different types of risks affecting the labor and financial markets. Two pillars are mandatory and operate on a defined contribution principle. These two pillars were to provide a lifetime pension for all participants. The first one is a defined contribution PAYG system (Social Insurance Institution) while the second one is fully funded with individual accounts (- open-end pension funds). The third pillar is voluntary.

New pension system has been criticized since it was introduced. In 2010 the first pensioners who had been participating in the new pension system retired, and the discussion about disadvantages of the system appeared at the “government level”. The discussion has been concentrated on low efficiency of the pension funds and increasing budget deficit. As a result, in 2013 the government proposed essential changes in the system removing savings from pension funds to Social Insurance Institution and changes of investing patterns of pension funds portfolios.

The aim of the research is to find out the optimal pension funds portfolios in years 1999 – 2012 by simulations of different portfolio structures, and comparing the returns from pension funds to other financial instruments such as bond and securities.