Poland’s retirement income system scored 57.5 on the 2022 Mercer CFA Institute Global Pension Index and a C grade in overall index value after evaluating the retirement income system’s adequacy, sustainability, and integrity. Poland’s retirement income system is comprised of a notional defined contribution (NDC) system at the national level, voluntary employer-sponsored schemes at the occupational level, and private products at the individual level.
National Level
The system is in transition from a pay-as-you-go to an NDC system, operated by the Social Security Institution (Zakład Ubezpieczeń Społecznych, or ZUS), and has undergone multiple reforms. The NDC system is composed of two types: NDC only and NDC and individual account. Insured people born before January 1, 1949, are still covered under the social insurance pay-as-you-go system. Insured people born from January 1, 1949, to December 31, 1968, could choose the new NDC system only or the NDC and individual account system for old-age benefits. As of February 1, 2014, membership in the individual account system is voluntary for all insured people.
The contribution rate for employee and employer remained unchanged from the pay-as-you-go system to NDC, which is 9.67% for both employer and employee, and 19.52% for the self-employed. For insured people who choose NDC and individual account, 6.82% of the contribution goes into NDC (16.6% for the self-employed) and 2.92% goes into individual account (same for the self-employed). The requirements for minimum and maximum annual earnings used to calculate contributions for employees remain the same as well: no minimum earnings, and maximum with 30 times the national average monthly earnings (4,271.51 zlotys in 2017).
The retirement age is 65 for men and 60 for women. Under the NDC system, insured people can claim the pension with at least one day of contribution, while the old pay-as-you-go system required at least 20 years of coverage for men (15 for women) to be eligible to claim a reduced pension, and 25 years of coverage to claim a whole pension. The pension benefit of the old system is calculated by the sum of the base amount, insured’s earnings, and number of contribution years, while the benefit of NDC is calculated by the total collected and indexed pension contributions and indexed initial capital, and life expectancy.
Occupational Level
The ‘mandatory private’ pillar called the Open Pension Funds (Otwarte Fundusze Emerytalne, or OFE) was established in 1999 but over the last decade, the government’s reforms have gutted the second pillar, moving funds into the other two pillars. In 2014, reforms saw the transfer of 51.5% of the net assets of the OFE to the ZUS. Furthermore, the assets of those stayed in the OFE will be gradually transferred to the public system or individual account 10 years prior to the retirement age.
Legislation requiring employers to set up, automatically enroll staff into, and contribute to Employee Capital Plans (PPK) was signed into law on November 19, 2018. An individual PPK account will be automatically established after a PPK agreement is created between an employer and a financial institution of choice on behalf of the employee. Employers are obligated to contribute 1.5% of an employee’s pay, with a possibility to contribute an additional 2.5%. Employees are obligated to contribute 2% (0.5% for employees earning up to 1.2 times the minimum wage) of their pay, with a possibility to contribute an additional 2%. Investments will be adjusted depending on the employee’s age. Employer costs related to the delivery of obligations stemming from PPK bills will be tax-deductible. Employees have the possibility to withdraw 25% of the amount as a one-off payment once they turn 60, with the remaining part paid in monthly installments (at least 120 installments). No tax will be applied when withdrawing funds from PPK after the employee turns 60.
The mandate applies to companies with 250 or more employees as of July 1, 2019, and will be extended in phases to all companies regardless of the number of employees by 2021. Employees aged 19 to 55 with at least three months of service will have to be automatically enrolled and new hires will have to be added within three months of starting work. Participation will be voluntary for employees aged between 56 and 70. The requirement will be waived for companies that already offer a qualified DC PPE retirement plan (Pracownicze Programy Emerytalne) before implementation of the PPK mandate, provided the employer contributes at least 3.5% of employee pay to the PPE and at least 25% of the enterprise workforce is covered by the PPE. The PPK mandate differs from the existing PPE program in that it automatically enrolls employees into the program, requires mandatory minimum and maximum contributions from both employees and employers, and expands the investment funds available, including international funds. In the long term, the PPK program aims to improve the pension structure for workers and increase their earnings over time.
Individual Level
The third pillar, known as an IKE, is designed for most Poles who do not have individual retirement accounts. These vehicles are offered by Polish pension fund companies, as well as insurance companies, banks, brokerages, and investment fund companies. As of the end of 2015, just under 859,000 had been set up, compared with some 16.5 million OFE accounts.
However, in 2016, the government announced additional plans to overhaul the second pillar system that will boost the third. It planned to transfer three-quarters of the savings held in OFE second-pillar accounts into third-pillar accounts, with the remainder to move into the first pillar. However, employers may intervene in this process and decide how much of their fund should go where. PLN103bn of the PLN140bn accumulated in OFE schemes was to be transferred to individual retirement IKEs by January 1, 2018, with each saver receiving the same amount (around PLN6,300), regardless of how much they had saved thus far.
Summary Sources
“Comparison of the New PPK Regime and Existing PPE Plans.” Willis Towers Watson. Accessed 07/22/2021.
Fisher, Sharon, “One step forward, two steps back for Polish pension reform.” IHS Markit. June 22, 2018. Accessed 04/21/2020.
Krzyzak, Krystyna, “Dramatic overhaul of Polish pensions spells end for second pillar,” IPE. August 4, 2018. Accessed 04/21/2020.
“Od czerwca 2021 r. planowana stopniowa likwidacja OFE.” February 25, 2021. Accessed 03/30/2022.
Pracownicze Plany Kapitałowe, “What’s good to know about the Employee Capital Plans (PPK).” June 30, 2019. Accessed 04/21/2020.
Social Security Administration. “Social Security Programs Throughout the World: Europe, 2018 (Poland).” September 2018.Accessed 04/21/2020.
Santander Fundusze Inwestycyjne. “Employee Capital Plan (PPK).” Accessed 04/21/2020.
Santander Fundusze Inwestycyjne. “How Does Individual Retirement Account (IKE) work?” Accessed 04/21/2020.
ZAKŁAD UBEZPIECZEŃ SPOŁECZNYCH, “The Demographic Reserve Fund.” November 03, 2016. Accessed 04/21/2020.
Current Issues
In November 2019, the government approved the transfer of all the assets in the OFE, the state guaranteed pension funds, to individual accounts. However, the transfer was initially deferred until January 28, 2022 (when OFE was scheduled to no longer exist), but has been further delayed with no set date, prompting worries amongst financial experts that it may not occur until late 2022, or later.
Various government officials have suggested several alternatives to the current proposed plan, including fusing together OFE and PPK to avoid incurring even more costs to account holders. However, there has been a profound lack of parliamentary discourse and legislative action on the issue.
Pensioners had up to August 2021 to make a choice about their OFE accounts; to transfer money to ZUS or to IKE with a conversion fee of 15%. If one chooses to transfer funds to ZUS, they will be subject to future pension tax and will not be able to withdraw amounts in a lump sum. In contrast, while choosing to transfer funds to an IKE will require a conversion fee, it will also allow savings to be inherited or allow the individual to withdraw funds in their totality.
COVID-19 Updates
In combination with other economic reforms due to COVID-19, in March 2021, President Andrzej Duda signed a bill into law granting 9.1 million retirees an additional 14th monthly pension payment by November 2021. This payment will be on top of the 13th additional payment paid in April 2021.
Summary Sources
Dula, Dorota. “Likwidacji OFE nie będzie: 7.10.2021. Co dalej z pieniędzmi przyszłych emerytów zarządzanymi przez Otwarte Fundusze Emerytalne?” October 7, 2022. Accessed 03/30/2022.
Dusza, Aleksandra. “OFE to be eliminated. The government adopted a draft law.” RSM. March 29, 2021. Accessed 07/01/2021.
“Likwidacja OFE najwcześniej w 2022 r.” April 2021. Accessed 03/30/2022.
“Od czerwca 2021 r. planowana stopniowa likwidacja OFE.” February 25, 2021. Accessed 03/30/2022.
“Poland to offer extra pensions despite pandemic.” The First News. March 8, 2021. Accessed 07/01/2021.
Source: Georgetown University’s Center for Retirement Initiatives
Last Updated 3/30/22