Performance of pension funds in Poland. application of investment efficiency measures

The pension system in Poland was reformed at the end of the XX century. Due to this original reform the system consists of two mandatory pillars: Social Insurance Institution (ZUS), representing the pay as you go system and open pension funds (OFE), representing fully founded system. (The pension contribution collected by the fist pillar was 1.7 of the contribution collected by the second one.) However during 15 years after the main reform, the pension system was not working capably. There was permanent lack of funds to pay pension benefits, what caused the increase of the budget deficit.

The criticism of the pension system functioning resulted in introducing essential modifications of the system by the government, among them the changes which went into affect in 2011 and 2014 influenced the pension funds the most. Beginning from 2014 founded pillar became not obligatory, and if it is selected as a part of the pension system the contribution collected by ZUS has been 5.7 of the contribution collected by OFE. There are also significant changes concerning investment portfolios created by OFE.

The explanation (of the introduced essential modification) given by the government were:

• high costs of administration and management and
• small  efficiency

of the pension funds. Therefore the aim of the study is evaluation of the investment efficiency of pensions funds operating in Poland in the years 2000-2013 in comparison to Social Insurance Institution, constructed benchmarks, investments made in equity, bonds and money markets. Analysis is provided applying reward-to-variability ratio and excess return information ratio defined by Sharpe, Treynor, Sortino, Sharpe-Israelsen measures, and so called Sharpe’s alpha.