Early retirement in Poland: dream or reality?
Donka Darpatova is a tax manager in the Warsaw office of Ernst & Young.
Living up to the standards previously set by my predecessors in this column: the legendary Peter Ferrigno and my dearest colleague and mentor Anna Szymańska, is a true challenge, and has already given me some sleepless nights.
For my début column, I have chosen the subject of the "early retirement dream". This dream is the primary driving force behind the zealous workaholism of a frightening majority of Warsaw's business community. More specifically, I will try to address the likelihood of this happening in the European Union domain of social insurance.
Callous statistics show that the bold e-generation currently managing and directing business in Europe has, with few exceptions, very little confidence in the state social security system, and hence the discounted value of future pension payouts. The tendency is, therefore, to view the contributions as a sunk cost, rather than considering ways to optimize their current value.
Curiously enough, it is not uncommon, even for the highly educated, to think of social contributions in terms of "dubious payroll withholding for sickness, disability, pension and whatnot, that the employer makes and I can never figure out." Fortunately for most Polish businesspeople working in Poland, there is no pressing need to understand the exact workings of the social security (ZUS) system, as long as they have not had any accidents at work, are not suffering from any work-related illness and have received their monthly pay even while on sick leave or on holiday.
Troubles begin when such individuals are sent on a foreign assignment. The first feelings of unease usually follow the distressing discovery that their net take-home pay has suddenly decreased, due to some awkward deductions which, after weeks of feverish investigation, turn out to be foreign social security payments. This raises questions that are frustratingly difficult to answer: Which hospital (Polish/foreign) would I be taken to in an emergency? Who would pay for it? How about coverage of regular medical treatment? Am I going to receive a Polish or a foreign pension? What if it's lower than the Polish equivalent?
The answers to these questions are often ambiguous and the resulting practicalities can be hugely expensive for many a Euro-trotter from pre-EU Poland. The good news is that from May 2004, this will hopefully cease to be a problem. How? Certain EU legislative acts, the most important of which is Regulation (EEC) 1408/71, will become part of the Polish legal/judicial system and will enter into force directly, without the need for special Polish vehicle legislation to be passed.
Also, the vast heritage of the European Court of Justice rulings and practices will become available for the ZUS/ministry officials and consultants to utilize in interpreting and applying the domestic legislation. So, if it turns out that certain provisions in the ZUS law contradict the general principles set out in Regulation 1408/71, such as non-discrimination or aggregation of periods of insurance, then you will have the long-awaited opportunity to take the Polish state to the European Court of Justice. Can't wait, can you?
Attention expatriates who do not currently pay Polish ZUS on remuneration received from outside of Poland! The golden days will probably be over from May 2004. The legal reasoning is rather complicated, but briefly: in accordance with one of the principles set out in Regulation 1408/71, EU citizens are subject to the jurisdiction of the EU state in which they actually work, which generally implies payment of social security in the country where the work is performed. However, unless an appropriate collection mechanism is introduced in the law, the absurd situation may arise where ZUS is due, but there are no legal tools to enforce its payment. Hopefully the Labor Ministry, which for the past few months has been zealously hiding the draft changes to the Polish social security legislation from the general public, will have thought of all this.
Although the changes in the social security regulation are EU-driven, it is likely that from May 2004, non-EU expatriates will also become liable to ZUS in respect to their foreign-paid income, which has been to date free of Polish social security.
In line with another principle for "aggregation of insurance periods", a Polish citizen who has worked for five years in Germany, twenty in France and fifteen in Poland, would be entitled to aggregate the total work periods, (i.e. forty years), for the purposes of meeting the specific retirement requirements in any EU state. The "principle of preservation of entitlements to benefits" (export of benefits), would allow this Polish citizen to retire in Germany, but receive his or her pension payouts from Poland and Germany while in France, if he or she has decided to indulge in some wine- and cheese-tasting in the sun.
On this tantalizing note comes the end of the first of a series of articles dedicated to the legislative changes to take place in Poland, some as soon as January 1, 2004, in the area of tax and social security. Even though it might seem a remote future occurrence, the volume of new provisions, practices and documents (over 70 new social security forms will be introduced) and their novelty is so overwhelming that they will no doubt directly affect many of you working in the finance and human resources areas, and dealing with foreign assignments. ZUS payers and consultants alike may face a radical shift in the years to come.
