Old-age pensions under the new scheme

The new old-age pension scheme is composed of three pillars.

Criteria for classification of three old-age pension pillars

Criteria
for classification 

first pillar 

second pillar 

third pillar

Status
of the scheme

 universal 

universal 

supplementary

Participation
in the scheme 

compulsory 

compulsory  

voluntary

Social objective 

basic level
of benefits

basic level of benefits 

higher level
of benefits

Scheme
management

public 

private / public

private

Benefits
financing

from current
contributions 

capital funded and from current contributions 

funded

First pillar is managed by a public body – the Social Insurance Institution.

Second pillar is made up of two parts: open retirement funds and a subaccount in ZUS. The open retirement funds (OFE) are managed by private institutions – general retirement fund societies (PTE). At the end of 2014 there were 12 of these with a combined membership of 16.6 million. The value of combined assets was PLN 148.5 billion.

Up until 31 January 2014 membership of an OFE was compulsory for those born after 31 December 1968. Since 1 February 2014 those starting work for the first time may choose whether they want a part of their retirement pension contributions to go to an OFE, or whether the whole amount should go to ZUS, for the period from 1 April to the 31 July 2014 they could choose whether they wished to remain in an OFE.

Third pillar, in a way similar to the second pillar is administered by private institutions. Affiliation with the third pillar is completely voluntary. This should ensure a higher level of old-age pensions in the future thanks to a supplementary contribution.
The third pillar consists first of all of:

  • Occupational Pension Programmes (Pracownicze Programy Emerytalne, PPEs)

  • Individual Retirement Account (Indywidualne Konto Emerytalne, IKE)

  • Individual Pension Security Account (Indywidualne Konto Zabezpieczenia Emerytalnego, IKZE).

Occupational Pension Programmes (Pracownicze Programy Emerytalne, PPEs)
1,064 such programmes were registered as of 31 December 2014, gathering about 381 thousand members.
The maximum amount of additional contributions which may be paid in by a participant to any single employee retirement programme for 2015 is PLN 17,815.50, monthly PLN 1,484.62 (as opposed to PLN 16,857 in the previous year).

Individual Retirement Account (Indywidualne Konto Emerytalne, IKE)
Individual Retirement Accounts are maintained by:

  • insurance companies (12),

  • investment funds managed by investment fund companies (15),

  • entities performing brokerage activities (6),

  • banks (13),

  • voluntary pension funds managed by General Pension Societies (4).

There is an annual limit to the amount of contribution to be paid into a IKE – in 2015 this was PLN 11,877 (as opposed to PLN 11,238 in the previous year). Anyone saving money in an IKE is exempt from the payment of capital gains on profits accrued.

In 2014, there were kept 824,485 IKE accounts, and their total value amounted to PLN 4.3 billion. The number of IKEs to which payments were made in 2014, totalled 264,217, and their total value amounted to PLN 909 million. The average payment to an IKE account in 2014 amounted to PLN 3.4 thousand1.

Individual Pension Security Account (Indywidualne Konto Zabezpieczenia Emerytalnego, IKZE) is an offer available since 1 January 2012.

  • Individual Pension Security Accounts are maintained by:

  • insurance companies (7),

  • investment funds managed by investment fund companies (12),

  • entities performing brokerage activities (5),

  • banks (3),

  • voluntary pension funds managed by General Pension Societies (9).

Since 15 January 2014, a quota limit on annual savings has been introduced in IKZE.
It amounts to PLN 4,750.80 in 2015 (as opposed to 4,495.20 PLN in the 2014 previous year), thus replacing the previously existing limit of payment equal to 4% of the assessment basis of the contribution to pension insurance. Money withdrawn from an IKZE before reaching the age of 65 years is subject to tax.
In 2014, there were 528,142 IKZE accounts, and their total value amounted to PLN 295.3 million. The number of IKZEs to which payments were made in 2014, totalled 86,521, and their total value amounted to PLN 201.9 million. The average payment to an IKZE account in 2014 amounted to PLN 2,3001 .
Every person who has reached the age of 16 has the right to save money in an IKE and IKZE.
From 1 January 2009, the right to an old-age pension under the new rules within the universal old-age pension scheme (pillar I and II) is exercised by persons born after 31 December 1948 who have reached the statutory retirement age. Currently, the right to an old-age pension under the new rules is exercised only by women. The first pensions for men under the new rules will be paid from 1 June 2014, when men born after 31 December 1948 will start to reach the statutory retirement age.

The universal age for retirement is not an obligatory moment to stop occupational work.

Under the new rules, an old-age pension is based on the close correlation of the benefit amount with the amount of contribution actually paid. Legislation in force governing old-age pensions under the new rules limits earlier retirement opportunities, i.e. it does not provide for preferential conditions of acquiring a pension entitlement for individual occupational groups within the universal old-age pension scheme.

Women who have reached or will reach the statutory retirement age in 2009–2014 and who have not joined an Open Pension Fund (second pillar), or have applied for the transfer of funds accumulated in an OFE account, via the Social Insurance Institution, to the State Budget incomes, and have not received – even for a single month – an old-age pension awarded and calculated under the old rules, are entitled to the so-called mixed old-age pension, i.e. partly under the old and partly under the new principles. For example, a woman who will reach the statutory retirement age in 2014, will be granted a pension to the amount of 20% under the old and 80% under the new rules.
Besides, the Act allows people born after 31 December 1948 who have not reached the statutory retirement age, to take advantage of the so-called partial old-age pension, i.e. at the lower retirement age.

The new retirement system incorporates:

  • retirement pension from the Social Security Fund (FUS)

  • as well as an additional period of capital retirement for women from monies credited to the FUS subaccount.

The rate of the new FUS pension for women is the equivalent to the sum of contributions for retirement insurance after 31 December 1998 along with the indexation of the initial capital divided by the average life expectancy in months for those of the same age as the individual retiring and applying for the granting of a retirement pension.

A temporary capital retirement pension is an entitlement for a woman who has the right to a retirement pension from FUS according to the new principles as well as who have accumulated credits in the ZUS subaccount, determined on the last day of the month preceding the month from which the right to a retirement pension is established in an amount equal to twenty times the sum of the supplement2 or greater than it. If these amounts are then lower they are accounted for on the basis of retirement pension calculations from FUS on the principles outlined in the act on retirement and benefit pensions from ZUS.

The amount of a temporary capital retirement pension is the sum of funds credited to the ZUS subaccount divided by the average life expectancy for individuals of an age equal to that of the individual retiring (the age taken for calculating the amount of a retirement pension from FUS on the new principles).

The entitlement to a temporary capital retirement pension expires on the day preceding that on which the woman reaches the general retirement age envisaged for a man born in the same year and quarter as she. After reaching this age the funds credited to the subaccount in FUS fund the amount of the retirement pension paid from FUS.
The entitlement to a temporary capital retirement pension equally expires in a case whereby the funds credited to the subaccount in FUS are exhausted.

In 2014 there were paid out on average 4.7 thousand temporary capital retirement pensions monthly, with the average amount of this benefit being PLN 103.36.

The amount of the new retirement pension from FUS for men is equivalent in value to the sums assembled after 31 December 1998 and the indexed contributions for retirement insurance, the sums of indexed initial capital as well as the funds credited to the subaccount divided by the average life expectancy for those of a comparable age to the individual applying for a retirement pension expressed in months.

The old-age pension is brought up to the amount of the minimum benefit if the insured person:

  • being a man – has reached the statutory retirement age and has completed a contributory and non-contributory period of at least 25 years,

  • being a woman – has reached the statutory retirement age and has completed a contributory and non-contributory period of at least 21 years (from 1 January 2014).

The initial capital has been introduced to account for a contributory period completed before the day of entry into force of the pension reform, that is before 1 January 1999. It is calculated for each insured person born after 31 December 1948 who had been paying – before 1999 – a contribution to social insurance or for whom such a contribution had been paid by the contribution payer. For each of these persons a hypothetical old-age pension is calculated, which the person concerned would have received on 1 January 1999.

The amount of the hypothetical old-age pension is calculated under the earlier rules, modified in the part concerning calculation of the so-called social element of the old-age pension. A total amount – composed of a contributory part, a non-contributory part and a social part – is multiplied by the average life expectancy for women and men at the age of 62 years, which equals 209 months. The amount calculated in this way constitutes the value of the initial capital as of 1 January 1999.

This is credited to the insured person’s account and is subject to annual indexation up to the moment of retirement. The initial capital indexation is carried out under the same rules as the indexation of the old-age pension contributions.

Some occupational groups may exercise the right to the old-age pension awarded under the new rules at a lower age than that of the statutory retirement age. These are e.g. persons employed in special conditions or in a special character who have completed the required qualifying period of a general character and the period of employment in special conditions or of a special character before 1 January 1999, did not join an OFE (or if they did so applied for the transfer of resources collected in an Open Pension Fund account, to State Budget revenues by means of the Social Insurance Institution).

1 Financial Supervisory Authority, Numerical data on the IKE market for 2014
2 From 1 March 2015 the amount constituting twenty times the supplement is 4,163.40 PLN (20 × 208.17 PLN).

 

(Note: 1 EUR = ca 4.32 PLN)