Gov't to amend pension rules

Labor Minister Jerzy Hausner said last week that by mid-year the government would introduce an amendment to the pension law aimed at slashing administrative costs and boosting competition among pension funds. The Democratic Left Alliance (SLD)-led plan comes over three years after the last government ushered in an ambitious reform of the old pay-as-you-go pension system. Hausner told a press conference last week that the new system needed some improvements as the returns on investments managed by Polish pension funds within the reform's second pillar are not impressive. "The return rate of pension funds' investments during the January 1999 and December 2001 period reached 25.8% on average and the best pension fund hit 37.2%," Hausner said. "If you compare those rates to the return on treasury bonds (43.3%), the conclusion is that the results of these investments are not satisfying." According to Hausner, the poor returns are not only due to the high commissions and fees charged by the pension funds, but the weak economy and the lack of competition among the funds themselves. "(The government) thinks that consolidation of small and medium funds could boost competition," Hausner said.

Until now, consolidation has been blocked by the Pension Fund Supervision Office (UNFE), though the office will soon cease to exist as the Sejm voted to abolish it earlier this year. "Consolidation without limits on the pension market would result in limited competition," UNFE's president Cezary Mech told Gazeta Wyborcza last week. "And that may only help to increase the dividends of pension funds, the owners of pension funds, but it would make the return on investments managed by the funds drop and eventually it would diminish the size of pensions in the future." Marek Góra, co-founder of the current pension system, said he favored consolidation. "Due to consolidation, administrative costs of pension funds will go down," he said. "Small and medium funds, which so far haven't been able to unite and have to face the four largest leaders on the market, have been focused on survival rather than investing. If they merge, this might change and they will be able to put investing into a long-term perspective and that's exactly what pensioners need when they save for 30 or 40 years." Hausner added that he opposed abolishing or changing the current 5% limit on investments abroad. "At least now, it doesn't seem to be a problem," he said. "The funds aren't using this limit to the full anyway. According to our information, only 0.35% of the funds' investments were made abroad. If it turns out that the limit is the main barrier against increasing the return rate of pension funds, than I'll be open to discussions." According to Hausner, investing abroad will not improve the funds' financial results. "What we should do is to make domestic investments more attractive," he said. "How? You will find that answer in the government's economic program."

Editor's note: In next week's Q&A, the WBJ talks to Aleksandra Wiktorow, head of the Social Insurance Administration (ZUS).