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The Polish Pension Reform
After Six Years
István P. Székely
IMF, European Department
The 1999 Pension Reform
 Terminated the old system for those born after




1948
In the new system it created two accounts:
 Notional Defined Contribution accounts.
 Funded Defined Contribution accounts in
open pension funds (OFEs), which are
privately managed.
Third pillar: Private accounts.
Mandatory retirement age unchanged, but
effective retirement age expected to increase
Total contribution rate unchanged but shared
between employer and employee differently and
part of the contribution to is transferred to OFEs.
Fiscal impact of the reform
Figure 1. The fiscal impact of the 1999 pension reform:
(The balance of the first pillar of the pension system relative to GDP)
2.0
Percent of GDP
1.0
0.0
-1.0
-2.0
-3.0
2050
2049
2048
2047
2046
2045
2044
2043
2042
2041
2040
2039
2038
2037
2036
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
-4.0
Pre-reform
Immediate projections after the introduction of the reform
Slippages Since 1999
Figure 2. Increase in the Number of Old-Age Pension Beneficiaries
(In Percent)
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1999
Sources: GUS
2000
2001
2002
2003
Slippages Since 1999
Figure 3. Average Old-Age Pension Relative to Average Wage
(In Percent)
57.0
56.0
55.0
54.0
53.0
52.0
51.0
50.0
1999
2000
2001
Sources: GUS and staff calculations.
2002
2003
2004
Slippages Since 1999
Figure 4. The first-pillar pension system, 1999-2004
(in percent of GDP)
7.0
6.0
5.0
4.0
3.0
2.0
1.0
1999
2000
Sources: The authorities and staff
calculations.
2001
2002
Pension spending
2003
pension contributions
2004
Slippages Since 1999
Figure 5. Slippages Since the 1999 Pension Reform:
(Projected balance of the first pillar relative to GDP)
1.5
1.0
Percent of GDP
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
2049
2044
2039
2034
2029
2024
IMF Staff latest projections
2019
Original projections
2014
2009
2004
1999
-3.0
ZUS projections 2003 most optimistic scenario
OFEs: Declining Coverage
Figure 6. OFEs: Average Contribution Base
Relative to Economy-Wide Average Wage
100
90
80
70
Percent
60
50
40
30
20
10
0
2000
2001
2002
2003
2004
OFEs: Structure of Investment
Figure 7. The Portfolio Structure of Second-Pillar Private Pension Funds
(end-January 2005, in percent)
5.6
Polish treasury bonds and bills
Equities
Other instruments
32.6
61.8
Impact on Government Savings
The Fiscal Impact of the 1999 Pension Reform
Headline fiscal balances
Overall balance
Contributions transferred to second-pillar pension funds
Balance corrected for lost contributions
Non-pension balance
Structural fiscal balances
Overall balance
Balance corrected for lost contributions
Non-pension balance
Second-pillar pension funds
Accumulated assets
Financial balance
Sources: The authorities and staff estimates.
1998
1999
2000 2001
2002 2003 2004
-2.4
-3.0
0.3
-2.7
-1.5
-3.0
0.9
-2.0
-1.4
-5.3
1.1
-4.2
-3.7
-6.3
1.2
-5.1
-4.1
-5.8
1.2
-4.5
-3.5
-6.7
1.2
-5.5
-4.1
-4.5
-4.4
-4.0
-2.6
-3.7
-2.6
-2.0
-4.9
-3.4
-3.0
-4.9
-3.7
-2.9
-4.6
-3.3
-2.4
-6.0
-4.7
-3.4
0.3
0.3
1.3
1.0
2.5
1.3
3.9
1.5
5.4
1.7
6.9
1.8
Conclusions
 The 1999 pension reform was a major effort toward
restoring the long-term stability of public finances,
but less-favorable-than-envisaged developments
since then resulted in less progress than targeted.
 Owing to a decline in employment, the coverage
of the pension system has declined.
 This and a faster-than-previously envisaged
increase in the real value of pensions have
resulted in a significant deterioration in the longterm financial position of the first pillar.
 For the same reasons, and because of high youth
unemployment, the accumulation of pension
savings in the second pillar has remained limited.
Conclusions
 These developments suggest a need for measures to
strengthen the long-term financial position of the
pension system and reduce the risk of old-age
poverty:
 The most effective way: promoting employment
 Broadening the base for social security
contributions, in particular for self-employed
 Promoting higher voluntary private pension
savings