Transcript Elements of the new social security system in Poland

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Pension Funds - Polish Experiences
Sławomir Pomarański
Head of Division
Pension Funds Supervision
Department
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Plan of presentation
Social Security System in Poland
Development of the market
Second Pillar (private pension funds)
Third Pillar (Employee pension plans)
Superintendency of pension funds
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Elements of the social security system in
Poland
WORLD BANK CONCEPT
OECD CONCEPT
• I pillar - mandatory PAYG system
• II pillar - mandatory funded system
• III pillar - voluntary
(Employee Pension
Schemes)
IA
I pillar
IB
II pillar
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THREE PILARS
Social
Insurance
Fund
Open-ended
Pension
Funds
PAYG
obligatory,
contract of generations,
administered by the
public institution,
individual accounts
Funded
obligatory,
capital,
administered by private
institutions,
individual accounts
First Pillar
Second Pillar
Savings and
additional
insurance
Funded
voluntary,
capital,
administered by private
institutions,
individual accounts
Third Pillar
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Age limitations in the begining in 1999
• People over 50 in 1999 have to save for their
pension in old mandatory PAYG system
exclusively (Defined Benefit),
• People between their 30 and 50 in 1999 had a
right to choose reformed Social Insurance
Institute or share their contribution between Openended Pension Funds (OPF) and Social Insurance
Institute, (63% joined pension funds)
• For people less than 30 in 1999 PAYG and OPF
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are obligatory.
Basic principles
• Close correlation between contributions and
benefits
• Combination of PAYG and the funde system
• In the future – financial indepencdency
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Reformed PAYG
• Reformed Social Insurance Institute mandatory for
all insured persons,
• System for all insured people covered by reform is
based on defined contribution (DC) scheme,
• Individual accounts were created for insured,
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Open-ended pension funds
• Funds started operations in 1999 - first
contributions in May,
• Financing mechanism is based totally on
funding,
• Funds are managed by the pension societies,
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Open-ended pension funds
• Participants have a right to choose between
privately managed funds,
• Contributions transfered by Social
Insurance Institute,
• Posibility to change a open-ended fund.
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Open-ended pension funds
• Pension Funds are part of public finance,
• First pensions from the Pension Funds will
be paid in 2009,
• The target level of benefits from I and II
pillar is about 40 - 60% of the salary.
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Pension societies
• The society operate as a joint-stock company and
have no business object other than that of creating
and managing funds and representing the funds
before third persons,
• The society manage the fund for a fee,
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Pension societies
• The society has a share capital of no less
than a zloty equivalent of
EURO 5,000,000
• One entity has a shareholder of no more
than one pension society.
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Pension funds
• The fund is created by none other than the
society,
• Fund has no bankruptcy ability,
• The main task of the fund activity is to
accumulate participants contributions and
investing these assets to maximise the security
and profit efficiency of investment,
• Participant contribution supplies monthly the
individual account in the fund.
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Elements of the funded part of system
Banking
sector
DEPOSITARY
BANK
SOCIAL
Information
INSURA-about participants
NCE
INSTIPENSION SOCIETY
TUTE Information
(ZUS) about resources
contribution
to the II
pillar
IT SYSTEM
Transfer
Agent
Information
concerning fund
assets
managing
PENSION
FUND
Information
concerning fund
liabilities
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Development of the market
• As far 15* pension funds operate on the
market,
• about 12.2 mln - members of the funds
(more than 14 mln signed agreements)*,
• 3 funds have more than 1.8 milion affiliates.
* January, 2000 - 21 pensions funds
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Development of the market
• Funds accumulated almost 62 billion zloty (it
represents about 20.6 billion USD),*
• More than 50% of assets are currently invested in
treasury bonds, and about 30% in shares.
* as Jnauary, 2005
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Development of the market
Pension fund investment
100%
80%
0,00%
0,18%
2,13%
1,64%
61,22%
56,97%
2,07%
6,81%
4,43%
2,71%
29,72%
32,12%
60%
40%
20%
0%
Dec 31, 1999
Jan 2005
shares
treasury bills
bank deposits
treasury bonds
other instruments
foreign investements 18
OPF
No. of members
Nett assets (zloty)
Commercial Union OFE BPH CU WBK
2 598 684
17 371 055 062,94
OFE Nationale Nederlanden Polska
2 146 060
14 079 019 809,85
OFE PZU Złota Jesień
1 981 480
8 695 143 616,92
AIG OFE
1 040 619
5 334 993 408,04
Generali OFE
431 184
2 101 419 005,25
Bankowy OFE
449 468
1 985 702 575,28
OFE Sampo
670 211
2 169 579 841,88
OFE Skarbiec - Emerytura
618 679
2 029 563 163,04
Credit Suisse L&P OFE
470 524
1 954 100 548,79
OFE Allianz Polska
284 738
1 670 469 108,18
OFE Ergo Hestia
471 546
1 343 616 369,14
OFE Pocztylion
495 505
1 308 458 336,39
Pekao OFE
298 297
1 013 825 413,85
OFE DOM
263 815
1 011 153 785,76
OFE Polsat
312 977
558 844 273,07
TOTAL
12 533 787
62 626 944 318,38
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Fund’s Investment Limitation (as % of assets value) I
• No limitation - bonds, bills and other
securities issued by the State Treasury,
• 20% - bank deposits and bank securities
(additionally - max. 5% in one entity, max.
7,5% in related entities),
• 40% - shares in companies listed on the
regular stock market (additionally - max.
10% in one issue).
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Fund’s Investment Limitation (as % of assets value)
• 10% - Shares of any other securities quoted on
over the counter market or not quoted on the
regulated market, but admitted to public trading,
• 15% - participation units disposed by open end
investment funds or specialised open end
investment funds (additionally - max. 5% of
one entity),
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Fund’s Investment Limitation (as % of assets value)
• 10% - Investment certificates issued by closed end or
mixed investment funds (additionally max. 2% in
single fund certificate),
• Additionally: 60% - shares in companies and
investment funds certificates total.
• 40% - Bonds and other debt securities issued by
communes, unions of communes or the City of Warsaw,
and admitted to public trading,
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Fund’s Investment Limitation (as % of assets value)
• 40% - fully secured bonds issued by entitles
other than communes, unions of communes or
the city of Warsaw and admitted to public
trading.
• Investment in the categories of instruments
mentioned above shall account cumulatively for
no less than 95% of the pension fund’s assets.
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Fund’s Investment Limitation (as % of assets value)
Other investments (maximum 10% total):
• bonds and other debt securities issued by public
companies and not admitted to public trading,
• other fully secured bonds not admitted to public trading,
• bonds and other debt instruments issued by public
companies and not mentioned previously,
• other investments which will be precised through the
decree of the Council of Ministers and Law of Public
Trade of Securities.
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Fees structure
• Front up fee - deducted by fund on up-front
basis from contribution and transferred to
society before convergence contribution
amount on accounting units.
• Managing fee - deducted from assets.
• Other costs deducted from assets eg.
brokerage fee and custodian fee.
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Fees structure
Level of current fees:
• front up fee ranges from 7 (now) down to 3,5%
(2014)
• managing fee: deducted from accumulated assets
(max. 0.6% a year).
• transfer fee (for transfer before 2 years of
participation, 80/160 zloty (approx. 26 – 52 USD).
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Voluntary
(Employee Pension Schemes)
• It is additional method for pension coverage
after retirement,
• Savings accumulated under such plans
should offer upper-standard pension
benefits,
• Might be a kind of “perks” for employers.
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Voluntary
(Employee Pension Schemes)
Set of agreements, which employer must sign
to create an employee pension plan
employee pension plan
corporate pension agreement
(employers with employees)
employer agreement with
financial institution
employee pension agreement
agreement with
insurance company
or mutual insurance institution
agreement
with investment fund
statue of employee
pension fund
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Forms of voluntary
(Employee Pension Schemes)
• employee pension fund,
• agreement with investment fund,
• agreement of group investment life insurance for
employees with insurance company,
• agreement of group investment life insurance for
employees with mutual insurance institution under
which employees become a member of that
mutual institution.
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Conditions which should be met to create
an Employee Pension Scheme
• employer employ at least 5 employees,
• exception - when firm is operating for at
least 3 years and employs 3 employees,
• employer has to register his firm at least one
year before setting corporate pension
agreement.
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PROTECTION OF MEMBERS’ INTERESTS
• Separation of fund’s assets and fund’s manager
resources
• Custodian
• Regulatory laws
– license requirements
– regulations on investments
• A minimum required rate of return
• Guarantee Fund
• The state supervision and guarantees
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PROTECTION OF MEMBERS’ INTERESTS
Regulatory Laws
safe investment principles, public inspection, pension fund assets
kept by Depositary Bank
Custodian
financial responsibility defined in regulations on investment
decisions by the Pension Fund Society
Minimum Rate of Return
if investment return rate is less than half of return achived by all
Pension Funds, the company must pay from its own resources
Guarantee Fund
if the company has insufficient resources, payment will be made
from Guarantee Fund covering the deficit
State Guarantees
if there are insufficient resources in Guarantee Fund - payments will
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be made from the state budget
The Insurance and Pension Funds
Supervisory Commission
•General objectives:
•1/ to safeguard the interests of the insured, pension
funds and occupational pension schemes members
•2/ to promote the security of the insurance system
and pension saving
•3/ to promote the development of efficient savings of
national insurance system and pension structures
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The Composition of the Commission’s Members
Voting members:
Chairman - appointed by the Prime
Minister
Deputy Chairman - appointed by the
appropriate minister for financial
institutions
Deputy Chairman - appointed by the
appropriate minister for social
security
Members:
Chairman of the Securities and
Exchange Commission
or his deputy
President of the Office for Competition
and Consumer Protection
or Vice President
Non-voting members:
Insurance Ombudsman
Person appointed by the
President of the
Republic of Poland
Inspector General of
Banking Supervision
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The Office organisation structure
The Insurance and
Pension Funds
Supervisory Commission
Life-Insurance
Supervision Department
Non-Life(NA)
Insurance
Supervision Department
Pension Funds
Supervision Department
Intermediaries
Supervision Department
Chairman
of the Commission
Commission Bureau
Director General
Human Resources
Bureau
AdministrationBudget Bureau
IT Bureau
Legal-Authorisation
Department
Communication and
European Integration
Department
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Supervision of Pension Funds
The Supervisory Commission
Open-ended Funds
Employeee Pension Funds
Depositary Banks
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Exchanging of information between
Supervisiors of financial Institutions
IPFSC
Securities Commission
Banking Supervision
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Supervision of Employee Pension Schemes
• The Supervisory Commission registers and
supervises only legal side of plans,
• The Supervisory Commission supervises
employers, not companies managing
Pension Program,
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Supervision of Employee Pension Schemes
• in the field of investment funds Securities
Exchange Commission is an controlling
institution,
• insurance companies are supervised by The
Supervisory Commission
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Supervision of Pension Funds
• Financial control of funds and more precisely
transactions consist of:
 buy/sell offers control,
 control of done transactions and comparison with
fund’s portfolio,
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Supervision of Pension Funds
 control of investment categories given by the law,
 controlling of prices paid,
 controlling the possibility of inside trading or
illegal dealing agreements,
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Supervision of Pension Funds
• transaction verification, whether investment policy
is similar as this given by statue,
• verification of transaction results from participant
point of view and his interest.
• Generally the main aim of investment policy is
comparing the facts with adequate laws and
decrees.
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Supervision of Pension Funds
• Pension funds report to Superintendency on day-,
month- and year basis (daily information contain
funds activity, monthly concerning society, year
information are inspected by auditor),
• Such system should help to protect funds against
risky or illegal investment policy.
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Complaints:
• Fund member may lodge with The
Supervisory Commission a complaint
against the fund,
• Inspection Unit was dealing with 2027
complaints in 1999, and 1362 in 2004.
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Subject of complaints:
• Sales force mistakes, misinforming and law
violations
• Social Insurance Institute operations e.g. problems
with registration in ZUS data base
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Subject of complaints :
• Pension funds operations
• Offering additional benefits for signing
participation agreement with fund
• Misleading advertisement
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The Supervisory Commission has the
following rights:
• to request from the Pension Fund Society
copies of all documents relating to the
activities
• to request any information or interview any
employees of the Society regarding the
activities of the Fund
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The Supervisory Commission has the
following rights:
An inspection may be conducted on the
premises of:
• a Pension Fund Society
• a Depositary
• an entity entrusted with keeping of the
register of the Fund members
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The Supervisory Commission rights:
• The Supervisory Commission may
administer upon the inspected party a fine
of up to 500.000 zloty (which represents
125.000 USD),
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Fine procedure:
1. On-site inspection,
2. Superintendency Department presents project of
instruction or fine. The project is analysed by
Legal-Licensing Department,
3. Legal-Licensing Dept. presents formal opinion
about this project,
4. Superintendency Department recommends this
decision Supervisory Commission to approval.
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PENSION – NEW SYSTEM
• Paid from two or three sources
• Established from:
–
–
–
–
–
earnings from the whole period of work
length of working life
increase of employees’ wage funds
efficiency of investments in the second pillar
savings from the third pillar
• Guaranteed by the state
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• Unrestricted earning possibilities for pensioners
The Insurance and Pension Funds
Supervisory Commission
6 E Niedźwiedzia Str.
02-737 Warsaw
Poland
tel. + 48 (0 22) 54 87 413
fax. + 48 (0 22) 5487415
[email protected]
http://www.knuife.gov.pl
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