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The Polish Old Age Security System in 2020

By Daniel Eryk Lach, Adam Mickiewicz University

When Poland regained independence in 1918, the pension schemes of the partitioning powers of Germany and Austria stayed in force in the respective parts of the country, while in the territory of the former Russian partition no proper pension regulation existed. The Social Insurance Act of 1933 introduced a unified system of pension insurance throughout the country. Since then the Polish pension system has experienced different structural reforms, especially during and after the period of socialism (1947–1989). The great reform of 1999 established private and occupational pension schemes in addition to the pre-existing public pension schemes. Currently, the legislator intends to provide ‘standard protection’ against financial risks in old age primarily by mandatory insurance in public pension schemes, including the general statutory scheme and several occupation-specific schemes, as well as capital-funded pension plans where part of the mandatory insurance contributions, determined by law, can be transferred. Further, persons working in hazardous jobs are mandatorily insured in a specific occupational pension scheme providing the former with a fixed-term pension for early retirement. Benefits from private pension plans and occupational pension schemes which are based on voluntary participation can ‘top up’ pension benefits if used in conjunction with other forms of ‘standard protection’. In addition, most of the salaried workers are automatically enrolled in supplementary occupational pension savings schemes (with possibilities for opting out) which were phased in beginning in 2019. Some public pension schemes guarantee a ‘minimum’ pension for persons who fulfil certain requirements. Outside of the Polish pension system, general social assistance measures provide a minimum subsistence level to persons in need.

Standard Protection in Old Age

The  statutory old age pension scheme  (ubezpieczenie emerytalne)  covers the majority of the economically active population, including civil servants and the self-employed. Voluntary insurance in the scheme is possible for all persons not mandatorily insured in the scheme. It is the largest public scheme, financed on a pay-as-you-go (PAYG) basis. Apart from the standard old age pension regulations, many specific regulations determine the right to benefits and their amounts concerning selected professional groups, such as miners, railway workers, teachers, selected civil servants and persons with disabilities. The reform of 1999 introduced notional defined contribution benefit formation to the system, which used to be based on the defined benefit model.1 As the amount of the benefit is no longer dependent on the period of employment/insurance, but only on the sum of contributions accumulated on the individual account, the reform of 1999 also introduced the capital-funded open pension funds (otwarte fundusze emerytalne, OFE) as part of the standard protection to supplement benefits of the statutory old age pension scheme. While first participation in the OFEs was mandatory for persons born after 1968, all persons insured in the statutory old age pension scheme can nowadays chose freely whether to contribute parts of their mandatory insurance contributions (2.92%) to the OFEs.2

Specific public pension schemes exist for distinct occupational groups who are excluded from mandatory insurance in the statutory old age pension scheme. The pension scheme for judges  (uposażenie dla sędziów w stanie spoczynku) and the pension scheme for public prosecutors  (uposażenie dla prokuratorów w stanie spoczynku) both provide privileged treatment for the respective professions. Both schemes are fully tax-financed, paid out of the general budget and commonly provide a high level of financial protection in old age, granting benefits based on earnings received at the end of a person’s career. Soldiers in the defence and officers in the security sector (i.e. police forces, intelligence agencies, customs and tax services, and others) are also enrolled in separate tax-financed public schemes, i.e. the military old age pension  (zaopatrzenie emerytalne żołnierzy zawodowych) and the police old age pension (zaopatrzenie emerytalne funkcjonariuszy).  Farmers and their families who work in the agricultural sector participate mandatorily in the heavily subsidised  farmers’ old age pension  (ubezpieczenie społeczne rolników), which provides moderate financial protection in old age.

Professional groups with burdensome professions are also mandatorily part of a distinct public scheme, namely the old age bridging pension  (emerytura pomostowa), which is partly paid from insurance contributions of the employer and is partly financed from the state budget. The scheme provides an early fixed-term pension until the conditions for claiming an old age pension in the statutory old age pension scheme are fulfilled.3

Top-Ups

The supplementary options for pension insurance consist of voluntary investment in different fully funded occupational pension schemes (pracownicze programy emerytalne, PPE) or private pension schemes, namely the  individual pension accounts  (IKE) and the individual pension security accounts (indywidualne konto zabezpieczenia emerytalnego, IKZE). Participation in the IKE is incentivised by tax reliefs; further, benefits from both private schemes are exempted from social security contributions. The schemes essentially represent a personalised saving system for old age based on capital investments and are administered by finance institutions chosen by either the employer or saver, such as investment funds companies, pensions funds, and insurance companies.

In 2019, the so called employee capital plans (pracownicze programy kapitałowe, PPK) were started to be implemented.4 As an occupational scheme of joint long-term saving, the PPK intends to cover the majority of the employed population between the ages of 18 and 54. An employer is bound to auto-enrol employees of the relevant age at regular intervals, providing the latter with the option to opt out; employed persons between the ages of 55 and 69 can opt in upon request. The state incentivises participation in the scheme by providing tax-deductions on contribution payments and state allowances by the Labour Fund to those who contribute more than the minimum amount to the occupational capital plans. For the employer it is mandatory to provide insurance for their employees in the PPK, if no other options for occupational pension insurance through PPE are provided. PPK plans do not have to be implemented, if at least 25% of the employees in the given enterprise have joined the PPE and the employer contributes at least 3.5% of remuneration to the PPE.

Minimum

The statutory old pension scheme and the farmers’ old age pension provide a ‘minimum pension’ that represents a minimum statutory level for pension provision for those who have reached the statutory retirement age and have complied with some specific qualifying conditions for minimum insurance periods. Outside of the pension system, means-tested social assistance (pomoc społeczna) measures aim at guaranteeing a basic subsistence level for destitute elderly persons. Such measures do not specifically target senior citizens but address other population groups as well.

1 The following is intended to provide an overview of the most up-to-date system only concerning those born after 31/12/1948.

2 At the beginning, participation in the OFEs was mandatory for those born after 1968 and voluntary for persons born after 1947 and prior to 1969. Since 2014, participation in the OFEs has become voluntary and contributions were lowered from 7.3% to 2.92% effective as of 2014. As of summer 2021, the funds are planned to be officially liquidated and insured individuals are provided with the default option of transferring their accumulated capital to voluntary individual pension accounts (indywidualne konto emerytalne, IKE) against a 15% tax and a subsequent possibility for tax-free benefits, or of choosing the tax-free possibility of relocating their savings to the statutory old age pension scheme, thereby increasing their public old age pension benefits, which however are subject to taxation.

3 As the main function of the old age bridging pension is to provide a fixed-term early retirement pension instead of long-term financial security in old age, these schemes are not pictured in the Pension Map for Poland.

4 Regulations are phased in gradually beginning in 2019 with PPK pension regulations being mandatorily provided by companies employing at least 250 people (as per 1 July 2019), companies employing at least 50 people (as per 1 January 2020), companies employing at least 20 people (as per 1 July 2020), and other companies and the public sector (as per 1 January 2021).

Full Report:
Schneider S. M., Petrova T., Becker U. (eds.), Pension Maps: Visualising the Institutional Structure of Old Age Security in Europe and Beyond, 2nd ed., Munich: MPISOC, 2021.

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