New pension funds earn 3.5% return: initiator

The new contributory pension funds brought a return of 3.5% since January 2020, according to the initiator of the scheme, Paweł Borys, Chairman of the Polish Development Fund (PFR)

The 3.5 percent profit comes despite lockdown plunges in the stock market, but enthusiasm for the result has to be tempered by the fact that inflation for 2020 is forecast at 3.3 percent. During the first ten months of the new contributory pension scheme, only 1.1 million working age Poles have signed up to the scheme, with the COVID-19 pandemic being one of several hurdles the scheme has encountered.

Phase I of the project targeted large private sector companies, around 60 percent of those employees eligible to sign up used the opt-out clause. Phase II, directed to medium-sized companies, was put back due to the virus and is now to be marketed along with Phase III, which is the registration of employees at smaller companies.

“At the year end the PPK funds could have up to PLN 4.5 bn (EUR 1 bn)” Bartosz Marczuk, the Deputy head of PFR, who says that as many as 80,000 companies will join in the autumn. The final stage is next year, when employees of government bodies will be signed up to the scheme.

The PPK pension scheme is an opt-out contributory savings scheme rather like the system adopted in the UK a decade ago. The employee pays in up to 1.5-2 percent of his salary, which is matched by the employer and topped up annually with a small state contribution. It replaces the OFE system launched in 1999 by the Jerzy Buzek Solidarity government and partially dismantled by the Civic Platform-People’s Party government in 2012.

The remaining portion of the OFE funds is to be transferred into personal investment accounts as part of the new system. The transfer has been postponed until next year as values were so low during lockdown that retirees would have made significant losses.

The lion’s share of the funds are invested in blue chip stocks on the Warsaw Stock Exchange. The main index, the WIG20 is down just under 10 percent this year, having made up a lot of the gains since prices plummeted in February when the extent of the impending crisis dawned on investors.

So far, most companies have signed up to PPK funds managed by the two largest financial institutions in Poland PKO BP (TFI PKO has 34% of the market) and PZU (TFI PZU has 14 percent), while two Nationale Nederlanden funds come in hot pursuit on 13 and 8 percent.