On May 1, a new law went into effect that diverts a portion of employee contributions from second-pillar individual accounts, managed by open pension funds (OFEs), to newly created first-pillar subaccounts, managed by Poland's social insurance institution (ZUS). As a result, employees now contribute 2.3 per cent of their monthly salaries (down from 7.3 per cent) to the second pillar and 5 per cent to the new subaccounts. (Contribution rates to the first-pillar, pay-as-you-go (PAYG) program remain the same, with employees contributing 2.46 per cent and employers contributing 9.76 per cent; employers do not contribute to the second pillar.) Starting in 2013, second-pillar contributions will gradually increase until reaching 3.5 per cent in 2017, with contributions to the new first-pillar subaccounts decreasing proportionally. According to the government, the diversion of contributions to ZUS is necessary to lower Poland's budgetary deficit, which was approximately 8 per cent of gross domestic product (GDP) in 2010, and to keep the national debt below the limit of 55 per cent of GDP set by Poland's constitution. The Ministry of Finance estimated Poland's debt in 2010 at 53.3 per cent of GDP.

Other key provisions of the new law include the following:

- The newly created subaccounts will be indexed according to the average of the previous 5 years' nominal GDP growth (excluding any decline in GDP).

- Investment limits for the second pillar will be changed; including an increase in the percentage of assets OFEs can invest in equities-from 40 per cent currently to 62 per cent by 2020.

- A new third-pillar voluntary savings vehicle, called individual pension insurance accounts (or IKZEs), will be introduced in 2012. (IKZEs will complement current voluntary individual retirement accounts (or IKEs), which differ slightly in terms of tax preferences and contribution limits.) Workers may set up an IKZE with an authorized institution, such as an investment company, insurance company, bank, or OFE; contributions on the first 4 per cent of gross wages are tax free.

In 1998, Poland adopted pension reform legislation introducing a new three-pillar system, including a mandatory government-managed notional defined contribution program, second-pillar mandatory individual accounts, and third-pillar voluntary retirement savings accounts. Participation in the system is mandatory for all economically active persons born after December 31, 1968, and voluntary for those born from January 1, 1949, to December 31, 1968.

Source: "IKZE Kontra IKE. Nowy Pomysl na Emerytury," Money.pl, February 6, 2011; "Sejm Przeglosowal Zmniejszenie Skladki do OFE," Money.pl, March 25, 2011; "Controversial Polish Pensions Revisions Signed into Law," IPE.com, April 8, 2011; "Ostatnia Walka OFE o Klientow," Gazeta Prawna, April 13, 2011; "Zmiany w OFE od 1 maja 2011 r.," Gazeta Podatkowa, April 26, 2011; "IKE I IKZE, Czyli Dwa Producty do Dodatkowego Oszczedzania," Parkiet, April 27, 2011; "Mniej na Emerytury w OFE," Gazeta Prawna, April 29, 2011.

Legislation date: 05.2011