"Q&A": Aleksandra Wiktorow
Q: ZUS owes zł. 5.5 billion ($1.3 billion) in back premiums and zł. 1.8 billion in interest to private pension funds. How did the situation get so bad? A: The debt is mounting because in the first years of the reform we didn't transfer all due contributions to pension funds. Documents sent in by payers were full of errors and we couldn't identify them. We had problems with processing the documents and our obligations kept growing.
Q: The government's plan to convert ZUS's outstanding debt into bonds means the debt will continue to grow. Is this the best way to address ZUS's inability to keep up with payments? A: There is no other way. We will convert 80% of our obligations to every single pension fund into bonds. So pension funds will get bonds instead of cash, which they would obviously prefer, and they will manage them while we try to identify the payers from the past and transfer their outstanding contributions. Pension funds will reflect bonds in the value of the settlement unit. That's why obligations stemming from past problems will no longer grow.
Q: Does this mean that ZUS no longer has problems processing documents sent by social security payers? A: The day-to-day flow of documents is under control. Unfortunately, we have tons of documents from the past that haven't been identified yet. The good news is that thanks to our accounting and recording systems we can already cope with the daily flow of documents and if there are problems identifying the insured it refers to only 10% of the total number of documents.
Q: Can you guarantee that ZUS will have full control of the computer system by mid-2005? A: Yes. That's when Prokom will finally complete construction of our system. But many elements of the system are already working. The media are focused on the Pension Funds' Accounts Record (SEKIF) as if it were the only element of the system that should work. It's obviously the most visible element of the system because we all want to know how much we have in our pension accounts. Meanwhile, Prokom, during the process of building SEKIF, which hasn't ended yet, has been its administrator, but starting this year ZUS will gain control over certain portions of the system, step by step, on a quarterly basis. We're training our employees to do the job that is now being done by Prokom's people.
Q: If you had been in a position to decide how to deal with the Prokom contract in 1998 - to break or renegotiate it - what would you have done? A: I haven't changed my opinion since then. I wouldn't have signed or broken anything. I wouldn't have signed such a contract without the knowledge of what was really needed. On top of that, I would not dare to introduce the reform without a long preparation period even if the reform didn't require installing a new computer system.
Q: According to a Supreme Chamber of Control (NIK) report, future pensions calculated under the new system might be lower than expected. Did this surprise you? A: People knew from the very beginning that new pensions would be lower when compared to individual wages. There was never doubt about that. Under the new system, unlike the old one, the size of the pension will depend on wages received during one's entire professional life. And this means that people who earn better will to a greater extent benefit from the new system. Secondly, the size of our pensions depends only on how much we will pay to the first and second pillars and that's why the state will be free of additional subsidies. At the same time, the authors of the new system assumed that Poland will be developing through all these 30 or 40 years until the reform is fully working. Our wages will be growing so even if pensions account for a smaller portion of wages than now, their amount in real terms will be satisfactory anyway.
Q: ZUS recently calculated how much it owes pension funds. Do you know how much money companies in Poland owe you? A: Obligations to ZUS date back before 1998. According to our estimates, companies owe us about zł. 19 billion ($4.28 billion) including zł. 10 billion ($2.38 billion) in interest, which includes the obligations of coal mines and steel mills undergoing restructuring. There are also day-to-day obligations, which do grow, but slowly, and amount to zł. 1.3 billion ($300 million). On the other hand, we're recovering quite a lot. Last year, we recovered zł. 1.8 billion ($420 million) in outstanding payments.
Q: How do you claim these payments? A: We have all the powers possible for doing that. We can try to recover the debt on our own or we can do it with the help of the tax offices. There are a lot of options such as applying to the prosecutor's office to declare a company's insolvency. We can also for instance block a company's bank accounts and take over all payments that are transferred to those accounts.
Q: But a lot of companies don't pay because many people believe that ZUS, being a huge bureaucratic institution, is unable to recover payments. A: Such opinions belong to the past. Most people already know that social security contributions must be paid. Under the new system, half of the contribution comes from an employee's wages so if an employer doesn't transfer it to ZUS he commits a criminal offense. If taxes and social-security contributions aren't paid it means the employer seized a portion of the employees' wages. Besides, if a company has a problem with ZUS payments and would like to negotiate them with us to delay them or to arrange installments of the payment it cannot even start negotiations without paying at least the employee's portion of the contribution.
Q: What's your current rate of collecting contributions? A: An average rate last year was 97.8%. But that doesn't mean we don't have problems. While our collection rate is high and our debt claiming procedures are very strict we do need state subsidies to be able to pay current social security benefits. The less we collect the more the state budget will have to pay in. Under the new pension system current social security benefits are paid from pension contributions but since a portion of current contributions are allocated in privately managed pension funds, the government has to cover that money to enable ZUS to pay due benefits. According to our estimates, in 2002, the government will have to transfer to ZUS some zł. 11 billion ($2.61 billion) - an amount that will cover the premiums we'll send to pension funds. Besides, the contribution rate, as compared to the size of benefits we pay, is too small.
Q: But most employers have long complained that labor costs are too high in Poland and high social security contributions deter them from hiring new people. Is there any chance to lower social security contributions in the near future? A: Not in the foreseeable future. An average pension amounts to zł. 1,111 (gross per month) and an average health benefit can reach zł. 815 (gross per month). Nobody would describe that as a lot of money, would they? So, if someone wants to lower social security contributions he will also have to lower the pensions down to some zł. 600 (net). Can you imagine telling people that the government plans to lower their pensions? One percent of a contribution amounts to some zł. 2 billion ($470 million). OK. So maybe we could lower future pensions within the new system to be able to lower contribution rates. But we still have those 7 million current pensioners (whose benefits are calculated under the old system) to whom we have to pay benefits on a daily basis. They will live for a long time and we need funds to meet our obligations to them.
Q: What if the government decides to lower both taxes and social security contributions to leave more money in our pockets? If the economy grows quickly, the government would be able to afford the short-term cost of more radical changes to the system. A: It's a kind of a vicious circle haunting the entire world. You have to pay the social security benefits on a day-to-day basis because the number of old people is growing. So no reasonable person, especially in a poor country like Poland, would lower pensions. And if we lower contributions, we'll have to increase taxes and increase subsidies if we don't lower pensions. Besides, it's a myth that lower tax rates would immediately result in an increase of budget revenue and generate new jobs. In Poland, dynamic economic growth doesn't need to translate into millions of new jobs. I'm not such an optimist. Maybe the finance minister will improve his tax-collecting rate so we could ask for more subsidies but I can't see how I could lower contributions. I have to meet my fixed obligations.
Q: Is ZUS liquid? A: Yes, we maintain liquidity thanks to a high collection rate and thanks to short-term bank loans.
Q: There are only 80,000 people saving under the third pillar scheme. Why isn't it more popular? A: One can say that the current pension system is really based on two pillars (one portion of future pensions paid by ZUS and the other from privately managed pension funds) and the third pillar is really what we call voluntary savings. Effectiveness of the third pillar depends on the economic situation but also on people's mentality. By our nature we're not inclined to saving.
Q: You're one of few state officials appointed by the former government who hasn't been replaced by the current cabinet. What's your secret? A: Why am I still here? Maybe it's because the emphasis now is on dismissing (Solidarity Election Action) AWS officials and I have never been a member of any party. Besides, my position isn't attractive at all. It might have been taken as one in the past, but not any longer. When I accepted the nomination last year it wasn't my assumption that I would stay for long. I was aware at that time that the new government might dismiss me. So far, I have been working with minister (Jerzy) Hausner but I know that if I don't meet my commitments I can be instantly dismissed.
