Open Pension Funds to be Disposed of

The Polish government announced its plans for a new pension system reform and its intention to entirely do away with Open Pension Funds (OFE). This will be a definite end of the retirement system as we know it.

Several years ago, after the reform of 1999, OFEs were supposed to be the main pillar of the pension system, where millions of Polish workers would deposit a part of their income waiting for old age to come. Today, lawmakers have a different vision of how the system should look like. But what about the funds deposited in the old pension funds or accounts?

The Major Changes in Pension Funds:

In a recent press conference, Prime Minister Mateusz Morawiecki presented how the shift from the old to the new will look like. Open Pension Funds, currently managing approximately 160 billion zlotys, will be closed and the funds will be transferred out. The government wants to give Polish citizens a choice when it comes to what will happen to their money.

The funds will be transferred either to Individual Pension Accounts (IKE), or the so-called third pillar (voluntary retirement savings), or Social Insurance Institution (ZUS), the first pillar. A transfer to IKE will entail a 15% fee. This is justified by the fact that money in Individual Pension Accounts are free from tax on capital gains, unlike funds in ZUS. The Prime Minister assured that the funds will be “100% private and inheritable”.

The lawmakers are currently working on applicable provisions. It is projected that the reform will come into effect at the beginning of 2020. Government experts estimate that majority of future pensioners will decide to move their money to IKEs instead of ZUS. This will give the state budget over 19 billion PLN in the form of the aforementioned “conversion” fee.