Efficiency of private pension funds in Poland

Changes in the demographic situation in the majority of European countries require reforms of the retirement systems to adopt them to the current situation. Therefore essential transformations of the pension systems have been introduced in Europe.

The main reform of the pension system was introduced in Poland in 1999. The new system consisted of three pillars, two mandatory ones: pay-as-you-go pillar and fully funded pillar (pension funds), and the third one - voluntary, funded pillar. In recent years the Polish government has been introducing several changes not only concerning the retirement age (it has been increasing by a month each quarter beginning from the first quarter of year 2013) but also changing the contribution of earnings that is saved in both mandatory pillars (in 2011). In addition as the scheme of investments in mandatory funded pillars is changing, specifically the pension funds’ portfolio composition and prohibition of investing in debt securities issued and guaranteed by the State Treasury (in 2014).

The pension age has also changed in Poland. In the past the minimum pension age was 65 for men and 60 for women. From 1 January 2013 the retirement age will be increasing by a month in January, May and September each year until it reaches 67 for both sexes (women in 2040, men in 2020). For the minimum pension, 25 and 20 years of contributions are required from men and women, respectively.

The aim of our research is to analyze the efficiency of the private pension funds which were operating in Poland in the years 1999-2013 and compare their performance to the constructed benchmarks. In our study Sharpe and Treynor ratios are evaluated on the basis of daily returns from the accounting units in the period from August, 17, 1999  to October, 17, 2013. The analysis is provided separately for distinguished sub-periods when certain market tendency is observed (i.e. bull, bear and neutral market).