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1 ISSN Socialiniai tyrimai / Social Research Nr. 1 (30), The beginning of the second millennium coincided with major pension reforms in many countries. This global movement also included Poland where the pension millennium was the period of expansion of old pension markets in the global economy. The paper analyses the development of the Polish pension market in the global context. Analysis and assessment of the experiences of Polish market. This in turn enables us to search for new solutions to modernize the national pension market. Open Pension Fund. introduced a major pension reform that entirely transformed the Polish pension insurance. The new one is public and managed by the Social Insurance generational solidarity. The second one is based on solidarity. The third one is intended to supplement participation in it is voluntary. This pillar is based on without inter-generational solidarity. In order to analyse the Polish pension market of the pension market creation in Poland is needed. be presented. This part of the paper will include evaluation of the Polish pension market size together with its separate segments. Then the major sources be presented in order to show the importance of the pension capital in the Polish economy. the global context will be provided. This part of the paper will include the comparison of the pension the analysis of the pension asset allocation will be assets in the world and in several individual countries. shown. sections will be put together to conclude what the developments of the Polish pension market against the tendencies in the global pension markets are. : analysis of the Polish pension market in the global context. : indicators of the Polish and the global pension markets. : 1. To describe the creation and development of the second millennium in detail. 2. To describe the most important global pension markets. pension market that pose a threat to its fast growth in the next decades. include detailed structural analysis of the types of pensions. The most important element of the Polish pension reform was the creation of the pension market

2 in Poland that consists of the second and the third two segments of the market are: the Open Pension Fund market and the Voluntary Pension Schemes market. The Open Pension Funds market is made up 1 Each Open Pension Fund is managed by only one specialized and authorized company companies are required to have a minimum capital and to maintain a reserve to meet any shortfalls custody agreement with an appropriate institution for the safekeeping of the pension fund assets. Although participation in the open pension fund not permitted to refuse a contract. An employee can Each worker must be treated equally. Contributions are collected centrally and are channelled through the Social Insurance Institution to the open pension funds chosen by customers. Then the money is converted into accounting units. Each accounting unit represents a proportionate share in each asset of the fund. It is valued daily and the results are published in newspapers and on the Internet. The balance on the worker s individual account is calculated as the number of accounting units multiplied by their respective values. The Open Pension Funds collect attained a retirement age. The duration of the open pension funds is unlimited. The investment policy of the Open Pension Funds is regulated by law and determined by the managing company. The open pension funds combine component). This resembles the investment policy of 2012). According to the Law on the Organization and must ensure the maximum security of the assets and at the same time maximize the overall return on must generate at least a minimum rate of return over a certain period. In Poland this rate is calculated on a The Open Pension Funds and managing companies are supervised by the Polish Financial Supervision Authority. The second segment of the Polish pension market (and the third pillar of the pension system) is the Voluntary Pension Schemes market. This market consists of three forms of long-term savings for individual retirement accounts and newly introduced individual retirement security accounts. Participation in this market offers an opportunity of gaining Schemes allow reallocation of customers incomes across the life-cycle according to their preferences and needs. It is a free choice concerning the timing and the amount of savings. The Occupational Pension Programs are group pension schemes. They are offered by employers to their employees. The Occupational Pension Programs have various forms that are regulated by special law. They can be self-administered by the employer or The Individual Retirement Accounts and the Individual Retirement Security Accounts are personal pension schemes. They are created by customers at The only difference between these accounts is tax treatment. Accounts and the Individual Retirement Security Accounts are supervised by the Polish Financial Supervision Authority. The major consequence of the creation of the Polish pension market is accumulation of substantial long term capital in the national economy. Lack year of functioning of the market the accumulated years this sum increased more than hundredfold to market became an important element and a stimulus 1 It s worth noting that at the beginning of 1999 the number of open pension funds was 21. During the following years the concentration process at the market led to the reduction of the funds number by one third.

3 Table Source: Supervision Authority Individual Retirement Accounts market. The compound annual growth rate of the market the pension market was analysed this value differed a 2 On the opposite compound the annual growth rate of the In the same time the compound annual growth rate of the Open Pension Funds market element of the Polish pension market. This sector totally dominates the Polish pension market since the beginning of its existence. This proves that the development of the Polish pension market is based entirely on the functioning of the Open Pension Funds. The remaining two sectors of the market are Table % 0% 0% % 0% 0% % 0% 0% % 1% 0% % 1% 0% 2% 0% 2% 1% Continued Table 2 2% 1% 3% 1% 3% 1% % 1% % 1% Source: Own calculation based on data from: Annual Financial Supervision Authority Occupational Pension Supervision Authority Individual Retirement Accounts market. capital to the second pillar of the Polish pension system. Compulsory contributions transferred by the Social Insurance Institution from workers gross earnings constitute the major part of capital gathered and managed by the Open Pension Funds (Figure pension market growth in Poland in the last 13 years 2

4 Contributions and net assets of the Open Pension Funds Source: It is important to emphasize that this situation will not change till the 2030s. At the beginning of that start to retire. This will be the beginning of higher The Polish pension market assets in 2010 compared with This growth is largely explained in Poland and around the world) after the end of the It shows that the second most important Polish pension market coincided with the bull market period in the global economy that lasted from 2003 Table Continued Table 3 II VI Source: Monthly Bulletins of Polish Financial Supervision Authority Open Pension Funds market. During this time the Polish pension market grew steadily and reached its peak level in October of the Polish pension market. Despite of the constant February Thanks to a rapid recovery of the pension market improved. Once again the Open Pension Funds net assets reached the peak level of Comparison of the total pension assets with of the pension market in relation to the size of the Polish economy. At the very beginning of the pension Polish economy pension savings has become. This accumulation of capital enabled a fast development Central and Eastern European enterprises. 39

5 Source: of Polish Financial Supervision Authority Open Pension From the global perspective at the end of the decade the Netherlands had the highest ratio of pension was also among the fastest growing pension markets last three countries would not be possible without the major pension reforms that introduced mandatory participation in the private pension funds Netherlands Switzerland 102% Australia 103% 101% Canada 92% South Africa Ireland Hong Kong 12% Poland 1% 10% France Source: It is worth noting that the Polish pension reason behind that is a lack of private and mandatory on capital funding are of a rather limited scope. half of this period this growth was only a little bit smaller and stood at the level of 21% per annum This spectacular percentage growth was caused change from a low initial amount to be translated into pension market was created only a year before the new initial amount of the pension capital was really low. the Open Pension Funds led to the fastest percentage growth in the world during the analysed period. Poland South Africa Hong Kong Australia Netherlands Ireland Switzerland Canada France Source: In the same time the most rapidly growing

6 (- annum. This was caused by a poor capital market Situation in the Polish pension market looks completely different when the size of the total the largest market in terms of the pension assets ion Australia Canada Netherlands Switzerland 310 South Africa France 133 Ireland 100 Hong Kong 31 Poland Source: Towers Watson Global Pension Asset Study From the local perspective the most important issue is how this capital is invested. Analysis of the aggregate portfolio of all Open Pension Funds shows that the Polish pension market remains the most of the total assets invested in its own market. Less than one percentage point of the pension capital is invested abroad. At the same time the domestic part of the aggregate portfolio has high exposure to bonds. that are legal investment limits of the Open Pension At the same time there is no legal limit for bond % 2% 32% 0% % Source: of Polish Financial Supervision Authority Occupational Financial Supervision Authority Individual Retirement Accounts market. This is completely in the opposition to the trends in the global pension markets. During the allocations were reduced. The Pension Funds did this in order to diversify their investments. The asset Australia continued to retain above average equity Netherlands are the markets with high exposure to has the highest allocations to bonds (Table 9). Table 9 Australia 12% 3% Canada 21% 2% 3% Netherlands 33% 1% Poland 1% Switzerland 29% 0% 33% 19% 1% Source: Further analysis of the Polish pension market indicates that it remains the most dependent on the invested in its own market. Less than one percentage point of the pension capital is invested abroad (Table 10). The main reason behind that are once again legal investment limitations for pension funds. According to the Polish law the funds cannot invest more than foreign allocations of the Open Pension Funds remain

7 management fee on the capital invested abroad. Thus foreign allocations of the Open Pension Funds are will be changed due to the judgement of the European to be removed. This includes increase of quantitative limits on the OPFs foreign investment to 30% of the value of the assets of the OPFs. Table 10 December 2009 December 2010 December 2011 Source: Authority Open Pension Funds market. It is worth noting that domestic allocations have to domestic bonds and low to equity and foreign allocations are not safe for customers. It is because a demographic or even political shocks affecting the market on the domestic assets (that include mainly global pension assets are mostly invested in equities. of the domestic equity in the pension assets portfolios was falling in almost all analysed countries (Towers contributions in pension schemes. Since the very beginning the Polish pension market is based only slower pace of 2.9% per annum. At the beginning of programs grew by 9% of the total global pension. Table 11 Poland 0% 100% Australia 19% Switzerland Netherlands Canada 2% Source: In the ranking of the markets with more based on the pay-as-you-go rule. In 1999 Poland introduced a major pension reform that split the go method. The second pillar is also obligatory despite the fact that it is private and based on capital funding. and individual retirement security accounts. of the pension reform was the creation of the pension market in Poland. It enabled the creation of the role in the Polish economy and assists the development

8 2012. At the beginning of the second millennium spectacular change would not be possible without Compulsory contributions transferred by the Social Insurance Institution from workers gross earnings constitute the major part of the Polish pension capital till today. be emphasized that Poland together with South Africa and Australia belongs to the fastest growing pension markets in the world. This spectacular growth in not be possible without the major pension reform that introduced mandatory participation in private pension funds. Nevertheless the pension capital to largest market in terms of pension assets (more than The fact that the Polish pension market was created as a side effect of the major pension pension markets. From the global perspective the most distinctive feature of the Polish pension market is asset allocation. Poland s full dependence on the domestic assets joined with high exposure to bonds is exceptional in the world. The global pension assets are mostly invested in equities. At the same time there are clear signs of reduced home bias in the equity degree in the global pension assets portfolios. So far this process has not taken place in Poland. Further analysis of the Polish asset allocation in the global context unveils that this market is based perspective there has been a clear trend towards total assets in the global pension markets. Absolute the Po 1. Act on the Organization and Operation of Pension Journal of Laws 2010 The Economics of the Welfare State, th IMF Working Paper Statistical Yearbooks of Poland szy Emerytalnych. sion. Insurance and Pension Fund Yearbooks Problems and challenges of the pension funds market in 1st. December Commission v Poland Value Investing And Behavioral Finance 11. Polish Financial Supervision Authority. Annual Bulletins. Individual Retirement Accounts Market Polish Financial Supervision Authority. Annual Bulletins. Occupational Pension Programs Market Polish Financial Supervision Authority. Annual Bulletins. Open Pension Funds Market Monthly Bulletin. OPF Market October 2007 Monthly Bulletin. OPF Market December 2007 Monthly Bulletin. OPF Market December 2008 Monthly Bulletin. OPF Market February 2009 Monthly Bulletin. OPF Market December Polish Financial Supervision Authority. Monthly Bulletin, OPF Market December Polish Financial Supervision Authority. Monthly Bulletin. OPF Market June Polish Financial Supervision Authority. Monthly Bulletin. OPF Market December 2011 Changes in the Financing of the Pension System in the Face of Ageing: The New Pension System in Poland and Its Adaptation to Other Countries Systems. International Social Security As Global Pension Asset Study Global Pension Asset Study The article has been reviewed.

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