Old-age pensions operating under the new rules

Old-age pension operating under the new rules 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

 statutory

statutory

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 

capital

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

Second pillar is made up of two parts: Open Pension Funds and a sub-account in ZUS. The Open Pension Funds (OFE) are managed by private institutions – General Pension Societies (PTE). At the end of 2016 there were 12 of PTE with a combined membership of 16.4 million. The value of net assets was PLN 153.4 billion.

Till 31 January 2014 participation in OFE was compulsory for those born after 31 December 1968. Currently those starting work for the first time may choose whether they want a part of their old-age pension contributions to go to an OFE, or whether the whole amount should go to ZUS. In 2014 and in 2016 from 1 April till 31 July OFE members could choose whether they wished to remain in an OFE. Next opportunity will be in 2020.

Third pillar, like 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 Old-age Pension Account (Indywidualne Konto Emerytalne, IKE)

  • Individual Old-age Pension Protection Account (Indywidualne Konto Zabezpieczenia Emerytalnego, IKZE).

Occupational Pension Programmes (Pracownicze Programy Emerytalne, PPEs)

Occupational Pension Programmes (PPEs) is a voluntary form of group saving for old-age pension, organized by the employer in cooperation with workers. The basic contribution is financed by the employer, and the employee can declare the payment of additional contribution, withheld from remunerati on. The funds contributed to the program are collected and managed by a financial institution which is chosen by the employer and employees in the organization phase of the program.

The funds which are accumulated on account of employee can be paid out, transferred to another PPEs or IKE or returned. Payment of accumulated savings may occur:

  • at the request of an employee after reaching 60 years of age,
  • at the request of the employee after reaching 55 years, and the presentation of the decision to grant the right to a pension,
  • without the employee’s request after he reaches 70 years of age if he has not requested the withdrawal before,
  • at the request of the survivior in case of death of the employee.

At the end of 2016, there were 1,036 employee pension programmes (PPE), which included:

  • 668 in the form of a contract with an insurance company,
  • 339 in the form of a contract with an investment fund,
  • 29 with an employee pension fund.

At the end of 2016, 395,600 employees were covered by employee pension programmes (0.8% increase compared to 2015).

In 2016, employers who ran the programmes paid PLN 1171.1 million in basic contributions to PPE (a decrease of PLN 21.8 million, i.e. 1.8% compared to 2015), and participants transferred from their own funds PLN 38.9 million (additional contribution).

The average annual basic contribution per a PPE participant in 2016 amounted to PLN 3,549 (a decrease of PLN 110 compared to 2015), while the average annual additional contribution – PLN 1192 (a decrease of PLN 12 compared to 2015).

In 2016, the maximum amount of additional contributions that a participant could deposit in an employee pension programme was PLN 18 247.50. In 2017, this amount totals PLN 19,183.50.

On 31 December 2016, the value of assets accumulated in employee pension programmes amounted to PLN 11.4 billion and increased by 7.2% compared to 2015. From among different forms in which employee pension programmes can be implemented, the most of accumulated assets were in investment funds – 6.5 billion zlotys and in life insurance companies – 1.8 billion zlotys, while the least was saved in employee pension funds – only 3 billion zlotys.

In 2016, a total of PLN 431.9 million was withdrawn from PPE. The average payout was PLN 36.5 thousand.1

Individual Old-age Pension Account (Indywidualne Konto Emerytalne, IKE)
Individual Old-age Penion Accounts are maintained by:

  • insurance companies (12),

  • investment funds managed by investment fund companies (16),

  • entities performing brokerage activities (6),

  • banks (12),

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

50 financial institutions in total. The right to pay contributions to IKE is granted to a person who has completed 16 years. Minors have the right to make contributions to the old-age pension account in the calendar year in which they have income from work on the basis of employment contract and their remuneration does not exceed the income. One person may have only one IKE.

Payment for IKE is taxed, and the tax is levied on income of the insured person (from which the IKE contribution is paid). The person saving in IKE is exempt from tax for capital gains.

At the end of 2016, 902.6 thousand people saved money in IKE, i.e. 5.5% of people who perform professional activity. The value of the IKE market in terms of accumulated assets amounted to PLN 6.7 billion (an increase of 17.9% compared to the previous year). The largest amount of IKE's assets was accumulated in insurance companies – PLN 2.3 billion.

In 2016, 92.5 thousand new IKE accounts were created, that is 19.7 thousand more than in 2015. Most IKE accounts were opened in investment funds – 54.2 thousand accounts, and the least in voluntary pension funds – 1.2 thousand accounts.

The average payment to IKE in 2016 amounted to PLN 3,700 and saw a slight increase of PLN 200 compared to 2015. The highest average contribution to IKE was recorded in entities conducting brokerage activities – PLN 9100, and the lowest in insurance companies – PLN 2,700.

IKE has an annual contribution limit. The limit is equal to 3 times the amount of the projected average monthly salary in the national economy for a given year, specified in the budget law or the act on the provisional budget. In 2016, this limit was PLN 12,155. In 2017, it is PLN 12,789.

The average balance of an IKE account in 2016 amounted to PLN 7400 – it increased by PLN 800.

The withdrawal of funds from IKE is tax-free. In order to withdraw funds from IKE, you have to be 60 years old or 55 years old if you have pension entitlement.

Individual Old-age Pension Protection Account (Indywidualne Konto Zabezpieczenia Emerytalnego, IKZE

Individual Pension Old-age Protection Accounts are maintained by:

  • insurance companies (7),

  • investment funds managed by investment fund companies (13),

  • entities performing brokerage activities (5),

  • banks (3),

  • voluntary pension funds managed by General Pension Societies (8).

36 financial institutions in total. The right to pay contributions for IKZE is granted to a person who has reached 16 years of age. Minors have the right to make contributions to the account in the calendar year in which they have income from work on the basis of employment contract and their remuneration does not exceed the income.

The person saving the IKZE can deduct payments to IKZE of the tax base.

One person may have only one IKE.

In 2016, 643.1 thousand IKZE accounts were kept, which constitutes 3.9% of people who perform professional activity. The total value of IKZE accounts was PLN 1.1 billion (an increase of 74% compared to the end of 2015).

Net payments made to IKZE in 2016, i.e. deposits of new funds reduced by withdrawals and refunds, amounted to PLN 443.6 million (an increase of PLN 92.1 million). The average payment to IKZE amounted to PLN 2,800.

The IKZE has an annual contribution limit, which is equal to 1.2 times the amount of the projected average monthly salary in the national economy for a given year, specified in the budget law or the act on the provisional budget. In 2016, this limit was PLN 4866, and in 2017 it was PLN 5115.60.

For the withdrawal of funds from IKZE at the age of 65 you have to pay a flat rate tax of 10% of income. This tax also applies to withdrawals from IKZE to the beneficiary in the event of the participant's death.

From 1 January 2009, the right to an old-age pension operating under the new rules within the statutory old-age pension scheme (pillar I and II) is exercised by persons born after 31 December 1948 who have reached the statutory retirement age. Until 31 May 2014, the right to an old-age pension operating under the new rules is exercised only by women. The first pensions for men under the new rules are paid from 1 June 2014, when men born after 31 December 1948 began to reach the statutory retirement age.

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

An old-age pension under the new rules, 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 statutory old-age pension scheme.

Insured born aft er 31 December 1948 who have not reached the statutory retirementage, have the opportunity to transition of the so-called partial old-age pension, i.e. at the lower retirement age.

The new old-age penion system incorporates:

  • old-age pension from the Social Security Fund (FUS),

  • an additional temporary capital old-age pension for women from monies credited to the FUS sub-account.

The amount of the new FUS pension is equivalent to the sum of contributions for old-age pension insurance after 31 December 1998 along with the valorization of the initial capital and funds credited to sub-accounts divided by the average life expectancy in months for those applying for the granting of an old-age pension.

 

the sum of: accumulated and for old-age pension insurance after adjustment 

initial capital after adjustment

funds credited to the sub-account 

OLD-AGE PENSION = ------------------------------------------------------------
 

average life expectancy of those of an age equal to that of the person retiring expressed in months

A temporary capital old-age pension is an entitlement for a woman who has the right to an old-age pension from FUS according to the new rules as well as who have accumulated funds in the ZUS sub-account (determined on the last day of the month preceding the month from which the right to an old-age pension is established in an amount equal to twenty ti mes the sum of the nursing supplement2 or greater than it). If these amounts are lower, they are accounted for in the calculation basis of old-age pension from FUS on the principles outlined in the act on pension benefits from the social insurance fund.

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

The entitlement to a temporary capital old-age pension expires on the day preceding that on which the woman reaches the universal retirement age envisaged for a man born in the same year and quarter as she. After reaching this age the funds credited to the sub-account in FUS will go to an old-age pension paid from FUS. The right to temporary capital old-age pension also expires on the exhaustion of resources stored on a sub-account in the Social Insurance Fund and the death of a member of an Open Pension Fund.

In 2016, 52.8 thousand temporary capital old-age pensions monthly were paid out on average, with the average amount of this benefit being PLN 173.42.

The old-age pension is brought up to the amount of the minimum pension 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 22 years (in 2016-2017) and 25 years as a target.

The initial capital has been introduced to account for a contributory period completed before the day of entry into force of the old-age 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 adjustment up to the moment of retirement. The initial capital adjustment is carried out under the same rules as the valorization 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 retirement age than that of the statutory retirement age. These are persons employed in special conditi ons 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 Polish Financial Supervision Authority, Informati on on employee pension programmes in 2016

2 From 1 March 2017 the amount constituting twenty times the supplement is 4,191.80 PLN (20 × 209.59 PLN).

 

(Note: 1 EUR = ca 4.26 PLN)