Individual Retirement Accounts - a new financial product for future pensioners

The Act on Individual Retirement Accounts (the "Act"), which will come into force on 1 September 2004, not only creates a new product for certain financial institutions (i.e. banks, investment funds, insurers, brokerage houses), but also provides future pensioners with a new form of saving money for their future retirement. This solution's greater advantage is that the entire profits generated by the funds gathered on the Individual Retirement Accounts (the "Accounts") are exempt from personal income tax, provided that certain additional statutory conditions are fulfilled. This solution should have a material impact on the attractiveness of the Accounts. Notably, the financial institutions mentioned above will have access to an attractive "market" consisting of individual savings that may be held and managed for a longer period of time. This system, however, has certain shortcomings. Firstly, the Act determines the maximum amount of money that may be transferred to an Account each year. Secondly, one person may only have one 'tax-free' Account, Hence, in case of more than one Account, profits generated by those Accounts are subject to taxation. Thirdly, payments made to the Accounts are not tax deductible. Nevertheless, financial institutions hope that these will not limit the demand for their services in connection with Individual Retirement Accounts. For further information please contact Lejb Fogelman or Jarosław Grzesiak at Dewey Ballantine. Tel. +48 22 690 6100; fax +48 22 690 6222; www.deweyballantine.com