Changes in the pension fund market after 2014 regulations

Changes in the demographic situation caused by declining fertility rates and the rise in life expectancy lead to a significant increase of the old-age-dependency ratios in the majority of OECD countries. This required reforms of the retirement systems. Many European states had to introduce significant changes to make their pension systems more financially viable.  In Europe, where the pension system was on the government’s agenda for at least a decade, the recent economic crisis of 2007-2009 has increased the need for a decisive action.  In order to make its system financially feasible and sustainable, the government had to give priority to long-term considerations over the short-term ones.

The main changes in the retirement system involved increasing retirement age and introducing a funded system instead of a Pay-As-You-Go system (PAYG). One of the most important reasons for this particular choice is the apparently superior performance of the capital markets in comparison to low rates of return on PAYG pension contributions (Sinn, 2000; Feldstein, 1997). By now it is widely accepted in most countries that pension systems and rules need to be changed over time. These changes, however, vary from country to country.

The main reform of the pension system in Poland was introduced in 1999. The new system consisted of three pillars: two mandatory pillars (PAYG and a fully funded one) and a voluntary (funded) one. In recent years the Polish government has introduced several more changes.  These included the following:

• Increase in the minimum retirement age from 60 for women and 65 for men to 67 years old, for both sexes.
• Changes in the proportion of the earnings contribution that is saved in both mandatory pillars.
• The mandatory funded pillar became voluntary (effective since July 2013).
• Regulations regarding pension funds’ portfolio composition were introduced. In particular, pension funds were prohibited from investing in debt securities issued and guaranteed by the State Treasury (effective since 2014).

The aim of our research is to analyze the pension system in Poland and its performance in the years 1999-2013 in comparison to the situation appearing after the 2014 regulations. The performance of private pension funds is evaluated and compared to the so-called national scheme (which is, in fact, a PAYG system).