Old-age pensions operating under the new rules

The old-age pension scheme operating under the new rules consists of two subsystems:

  • the general pension scheme with the following funds:
    • Social Insurance Fund, managed by a public institution – the Social Insurance Institution,
    • Open Pension Funds (Otwarte Fundusze Emerytalne, OFEs) managed by private institutions – General Pension Societies (Powszechne Towarzystwa Emerytalne, PTEs);
  • the voluntary funded pension scheme managed by private institutions; the membership is entirely voluntary; it is intended to provide in the future increased pension benefits for additional contributions.

In the general pension scheme operating under the new rules, old-age pension is available to persons who meet both of the following conditions:

  • have reached the normal retirement age of 60 years for women and 65 years for men,
  • at least one contribution for the old-age pension insurance has been credited by ZUS to an individual account of the person insured.

The amount of pension according to the new rules is closely related to the amount of contributions paid.

 

total amount of the credited old-age pension insurance contributions after adjustment
+ initial capital after adjustment
+ funds credited to the sub-account

NEW PENSION FROM FUS = ------------------------------------------------------------
 

average life expectancy for persons of an age equal to the retirement age of the insured person concerned, expressed in months; according to tables published by the Central Statistical Office

A woman who has been granted by ZUS an old-age pension from FUS under the new rules and who is under 65 years old, i.e. has not reached the normal retirement age for men, receives a temporary funded pension. In order to receive such a pension, the value of funds credited to her sub-account in ZUS on the last day of the month preceding the month from which the pension will be granted must be at least equal to twentyfold of the nursing supplement. From 1 March 2019 an amount equal to twentyfold of the nursing supplement is PLN 4,440.20 (20 × PLN 222.01).

The amount of the temporary funded pension is calculated by ZUS by dividing the funds credited to the sub-account by the average life expectancy for people of the age equal to the age at which the insured person retires.

If the value of funds from the sub-account is lower than required, ZUS shall add them to the basis for calculating the old-age pension from FUS pursuant to the principles laid down in the Old-Age Pension Act. The Social Insurance Institution shall then calculate the general old-age pension from FUS on the basis of the credited old-age pension insurance contributions after adjustment, the initial capital after indexation and funds from the sub-account.

The right to a temporary funded pension expires on the day preceding the day on which the woman reaches the normal retirement age envisaged for a man, i.e. 65 years. After this date, ZUS will add the funds on her sub-account to the general pension from FUS.

The right to the temporary funded pension will also expire if there are no more funds on the sub-account or if the entitled woman dies.

In 2018, ZUS paid out an average of 240.5 thousand temporary funded pensions per month, with the average amount of PLN 198.70.

ZUS increases the old-age pension to the amount of the minimum benefit, if:

  • the insured man has reached the normal retirement age and his insurance period is at least 25 years,
  • the insured woman has reached the normal retirement age and her insurance period is at least 20 years.

The initial capital is a component of the pension calculation basis. The period of contribution payments until 1 January 1999 is calculated in this way. ZUS sets the initial capital for each insured person born after 31 December 1948, for whom a social insurance contribution has been paid before 1999.

The Social Insurance Institution calculates the hypothetical pension that such a person would have received on 1 January 1999, according to the old rules. However, these rules have been modified for calculation of the so-called social part of the old-age pension. A total amount – composed of a contributory part, a non-contributory part and a social part – is multiplied by average life expectancy for women and men in the age of 62 years. It equalled 209 months. The amount calculated in this way is the initial capital as at 1 January 1999.

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

Additionally, some professional groups may take advantage of the old-age pension awarded under the new rules at lower retirement age than the normal retirement age. These are employees performing work 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,
  • have not joined OFE (and if they have, they have requested the transfer of the funds accumulated in OFE account to the state budget revenues).

Voluntary funded pension scheme

The following institutions exist under the voluntary funded pension scheme:

  • Open Pension Funds (Otwarte Fundusze Emerytalne, OFEs),
  • Occupational Pension Schemes (Pracownicze Programy Emerytalne, PPEs),
  • Individual Pension Accounts (Indywidualne Konta Emerytalne, IKEs),
  • Individual Pension Security Accounts (Indywidualne Konta Zabezpieczenia Emerytalnego, IKZEs),
  • Employee Capital Plans (Pracownicze Programy Kapitałowe, PPKs).

Open Pension Funds (Otwarte Fundusze Emerytalne, OFEs)

Until 31 January 2014, participation in the Open Pension Fund was compulsory for persons born in 1969 or later. Currently, people who take their first job can choose whether to join such a fund. Persons who have been OFE members already, could choose, from 1 April to 31 July 2016, whether to continue their membership in the Fund. The next opportunity to change the decision will be in 2020.

At the end of 2018, there were ten Open Pension Funds. They had a total of 15.9 million members (16.1 million in 2017). The value of the investment portfolio of Open Pension Funds amounted to PLN 156.6 billion.

At the end of 2018, the investment portfolio of OFEs included:

  • shares of companies listed on a regulated stock market (85%),
  • bonds (7%),
  • bank deposits (6%),
  • other deposits (2%).

Source: Komisja Nadzoru Finansowego [Financial Supervision Authority], „Biuletyn Kwartalny.
Rynek OFE” [Quarterly Bulletin. OFE market] 2018, No. 4.

Occupational Pension Schemes (Pracownicze Programy Emerytalne, PPEs)

Occupational Pension Schemes (PPEs) is a voluntary form of collective saving for old-age pension, organised by the employer in cooperation with employees. The basic contribution is financed by the employer, and the employee may declare the payment of additional contribution which is withheld from remuneration.

The funds are transferred by a financial institution chosen by the employer and the employees during the organisational stage of the programme. This institution manages all the funds.

The funds accumulated on the employee’s account 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 of age and submitting his/her decision to grant the right to a pension,
  • without the employee’s request after he/she reaches 70 years of age if he/she has not requested the withdrawal before, tt at the request of the survivor in case of death of the employee.

At the end of 2018 there were 1,230 Occupational Pension Schemes, including:

  • 623 in the form of a contract with an insurance company,
  • 582 in the form of a contract with an investment fund,
  • 26 with the occupational pension fund.

At the end of 2018, 426.0 thousand people were covered by Occupational Pension Schemes, which accounted for 2.6% of the total number of employees.

In 2018, employers who ran the programmes paid PLN 1,310.8 million of basic contributions to PPEs, while the voluntary contributions of PPEs’ participants amounted to PLN 45.8 million.

The average annual basic contribution per one PPE’s participant in 2018 was PLN 4,070.00, while the average annual additional contribution was PLN 1,253.00. In 2018, the maximum amount of additional contributions a participant could deposit in one Occupational Pension Scheme was PLN 19,993.50, while in 2019 it was PLN 21,442.50.

At the end of 2018, the value of assets accumulated in Occupational Pension Schemes was PLN 12.8 billion and it has increased by 1.2% compared to the previous year.

In 2018, the total amount of money withdrawn from PPEs was PLN 5,779.7 million, i.e. PLN 78.2 million more than in the previous year. The average payout was PLN 37.3 thousand.

Source of data: Komisja Nadzoru Finansowego [Financial Supervision Authority], Pracownicze
programy emerytalne w 2018 r. [“Occupational Pension Schemes in 2018”].

Individual Pension Account (Indywidualne Konto Emerytalne, IKE)

At the end of 2018, Individual Pension Accounts were maintained by:

  • 14 life insurance companies,
  • 18 investment fund companies,
  • 7 entities conducting brokerage activities,
  • 7 commercial banks,
  • 4 cooperative not associated banks,
  • 2 cooperative associated banks,
  • 5 general pension societies.

A total of 57 financial institutions included IKEs in their offer.

The right to pay contributions to IKE is exercised by an individual who is over 16 years of age. A minor may pay contributions to a pension account in the calendar year in which he/she receives income from work performed on the basis of an employment contract and in the amount that does not exceed such income. One person may have only one IKE.

The contribution to IKE is taxed and the tax is levied on the income from which the IKE contribution is paid. A person who saves on IKE is exempted from capital gains tax.

At the end of 2018, IKE was held by 995.7 thousand people, i.e. 5.8% of employed persons. The value of the IKE market in terms of accumulated assets amounted to PLN 8.7 billion (growth by 9.2% as compared to 2017). Most of IKE’s assets were accumulated in investment funds (PLN 2.7 billion) and in insurance companies (PLN 2.6 billion).

In 2018, 95.9 thousand new IKEs were created, i.e. 0.9 thousand less than in 2017. Most of the IKEs were established in investment funds (65.6 thousand accounts) and the least in voluntary pension funds (0.9 thousand accounts).

The average contribution to IKE in 2018 amounted to PLN 4.2 thousand and increased slightly compared to 2017 – by PLN 0.3 thousand. The highest value of the average payment was recorded in entities conducting brokerage activities (PLN 9.8 thousand) and the lowest in insurance companies (PLN 3 thousand).

There is an annual limit for contributions paid to IKE. It is an amount equal to 3 projected average monthly wage/salary in the national economy for a given year, specified in the Budget Law or the Provisional Budget Law. In 2018, this limit was PLN 13,329.00, and in 2019 – PLN 14,295.00.

The average balance of the IKE account in 2018 was PLN 8.7 thousand. It increased by PLN 0.3 thousand compared to 2017.

Funds may be withdrawn in one-off formula or in instalments. The vast majority of withdrawals (96.8%) was made on one-off basis, and only 3.2% of people withdrawing from IKE took advantage of the possibility to withdraw funds in instalments.

The withdrawal of IKE funds is tax-free. In order to withdraw funds from IKE, one has to be 60 years old or be 55 years old and gain old-age pension rights.

Source of data: Komisja Nadzoru Finansowego, Departament Funduszy Inwestycyjnych i Funduszy Emerytalnych [Financial Supervision Authority, Department of Investment Funds and Pension Funds], Indywidualne Konta Emerytalne i Indywidualne Konta Zabezpieczenia Emerytalnego w 2018 r. [“Individual Pension Accounts and Individual Pension Security Accounts in 2018”], Warsaw 2019.

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

At the end of 2018, Individual Pension Security Accounts were maintained by:

  • 9 life insurance companies,
  • 16 investment fund companies,
  • 6 entities conducting brokerage activities,
  • 1 commercial bank,
  • 2 cooperative banks,
  • 7 general pension societies.

A total of 41 financial institutions included IKZEs in their offer.

The right to pay contributions to IKZE is exercised by an individual who is over 16 years of age. He/she may pay contributions to a pension account only in the calendar year in which he/she receives income under an employment contract and in the amount that does not exceed such income.

A person saving in IKZE may deduct payments credited to this account from his/her taxable income. One person may have only one IKZE.

At the end of 2018, IKZE was held by 730.4 thousand people, i.e. 4.3% of employed persons. The total value of IKZE accounts was PLN 2.3 billion (an increase by 35.6% as compared to the end of 2017).

Net deposits into IKZEs in 2018, i.e. deposits of new funds less withdrawals and refunds, amounted to PLN 706.4 million (an increase by PLN 135.7 million).

In 2018, 74.8 thousand new IKZEs were created, 12.2 thousand more than in 2017. Most IKZEs were established in investment funds (37.3 thousand accounts) and the least in entities conducting brokerage activities (2.8 thousand accounts).

There is an annual limit for contributions paid to IKZE, which is an amount equal to 1.2 of the projected average monthly wage/salary in the national economy for a given year, specified in the Budget Law or the Provisional Budget Law. In 2018, this limit was PLN 5,331.60, and in 2019 – PLN 5,718.00.

For the withdrawal of funds from IKZE at the age of 65, a lump-sum tax of 10% of the income must be paid. This tax also applies to withdrawals from IKZE to the beneficiary in the event of the saver’s death.

Source of data: Komisja Nadzoru Finansowego, Departament Funduszy Inwestycyjnych i Funduszy Emerytalnych [Financial Supervision Authority, Department of Investment Funds and Pension Funds], Indywidualne Konta Emerytalne i Indywidualne Konta Zabezpieczenia Emerytalnego w 2018 r. [“Individual Pension Accounts and Individual Pension Security Accounts in 2018”], Warsaw 2019.

Employee Capital Plans (Pracownicze Programy Kapitałowe, PPKs)

The Employee Capital Plans are regulated by the Act of 4 October 2018 on employee capital plans. From 1 January 2021, PPKs will automatically cover all employees between 18 and 54 years of age, for whom the employer pays pension contributions. The programme will not cover self-employed persons, uniformed services’ employees and farmers. Employees between 55 and 69 years of age will be able to participate in PPKs on the basis of a declaration of intent.

The introduction date of Employee Capital Plans depends on the number of employees in the company. From 1 July 2019, this programme applies to companies with more than 250 employees. From 1 January 2020, PPKs will cover companies with more than 50 employees, and from 1 July 2020 – with more than 20 employees. From 1 January 2021, PPKs will cover employees of any other companies.

The Employee Capital Plans will constitute a compulsory package of employee benefits. The employer is obliged to select an institution running a PPK and to create a PPK for its employees.

Under the PPK, the employee and the employer pay a basic (compulsory) and an additional (voluntary) contribution to the employee’s account. Moreover, a PPK participant may receive a special subsidy financed from the Labour Fund.

The amount of contributions transferred to the account of a PPK participant:

  Contribution from the employee’s gross
remuneration, to be paid by:
  the employer the emplyee
Basic compulsory contribution 1.5% 2%
Additional voluntary contribution up to 2.5% up to 2%

A PPK participant whose remuneration, even from various sources, is less than 120% of the minimum wage/salary, may pay a reduced contribution – from 0.5% to 2% of the gross remuneration.

Subsidies to PPK participant’s account are financed from the Labour Fund

Each PPK participant receives a welcome payment of PLN 250.00. In addition, a PPK participant will receive an annual subsidy of PLN 240.00 if the amount of paid basic and additional contributions is equal to the amount of basic contributions due from 6 minimum wages/salaries. When a basic contribution of a PPK participant is reduced to 0.5%, he/she is entitled to an annual subsidy if the amount of basic and additional payments in a given year is equal to 25% of the basic payments due from 6 minimum wages/salaries.

These payments are not included in the remuneration which is the basis for assessing the amount of pension contributions. However, they may be classified as deductible costs.

The funds accumulated on PPK participant’s account may be invested by the following
institutions:

  • general pension societies,
  • investment fund companies,
  • employee pension societies,
  • insurance companies.

The institution that creates employee capital plans should:

  • have at least 3 years’ experience in the field of management of investment (openended) funds, pension funds or open-ended pension funds; the insurance company should have in its offer, for at least 3 years, insurance with investment elements;
  • have equity (or eligible own funds) of at least PLN 25 million, with at least PLN 10 million in liquid funds (i.e. deposits specified for money market funds);
  • operate an appropriate number of defined-date funds or sub-funds.

Each institution that undertakes to operate the PPK is required to establish a minimum of 5 defined-date funds. The investment portfolio in each of them should be designed in a way ensuring that the investment risk decreases with the progressive age of a PPK member.

Investment limits apply to particular capital tools. These are the following:

  • at least 40% – WIG20 companies,
  • maximum 20% – WIG40 companies,
  • maximum 10% – other listed companies,
  • at least 20% – foreign investment.

In the debt part, the capital may be invested in the following way:

  • at least 70% in:
    • securities issued or guaranteed by the Treasury, the National Bank of Poland, local authorities, public authorities or central banks of the Member States, the European Union, the European Central Bank, the European Investment Bank or other securities guaranteed by organisations with a rating recognised by the European Central Bank,
    • deposits with a maximum maturity of 180 days with domestic banks or credit institutions with a rating recognised by the European Central Bank;
  • no more than 30% in other assets, of which a maximum of 10% may be invested in instruments that do not have a rating recognised by the European Central Bank.

The financial institution that manages the capital will receive remuneration amounting to a maximum of 0.5% of the Fund’s net assets value and a performance bonus of a maximum of 0.1% of the value of collected assets.

Accumulated funds will be owned by a PPK participant.

Funds may be disbursed to a PPK participant:

  • upon reaching the age of 60 years by the participant,
  • before the participant has reached the age of 60 years.

Rules for funds withdrawal upon reaching the age of 60 years by a PPK participant

A PPK participant who has reached 60 years of age will not incur additional costs if
he/she makes a one-off withdrawal of 25% of the accumulated funds and withdraws
the remaining 75% in at least 120 monthly instalments.

It is also possible to withdraw funds in the form of a matrimonial benefit – if both
persons are over 60 years old and have PPK accounts in the same institution.

PPK funds may also be transferred to a term bank deposit if there is a payment in
instalments for at least 120 months.

Rules for funds withdrawal before reaching the age of 60 years by a PPK participant

A PPK participant who is under 60 years old will be able to withdraw his/her funds:

  • in the case of a serious illness (including malignant tumour, stroke, myocardial infarction, encephalitis, atrophic lateral sclerosis, Alzheimer’s disease, Parkinson’s disease) of the PPK participant, his/her spouse or child; this is a non-refundable payment of up to 25% of the funds accumulated in the PPK account;
  • for own contribution [in connection with taking out a mortgage loan] – for persons under 45 years of age; it is a withdrawal of up to 100% of the accumulated capital with the obligation to return it, however, the return may not start later than 5 years from the date of withdrawal and may not last longer than 15 years from the date of withdrawal.

Funds withdrawal before the age of 60 will result in the loss of 30% of contributions paid by the employer (they will be transferred to ZUS) and all subsidies from the government. The PPK participant will also be obliged to pay income tax on capital gains (currently the tax rate is 19%).

Before reaching the age of 60, the PPK member may at any time transfer funds to another PPK, to IKE or to PPE – his/her own or belonging to an entitled person.

When a PPK member turns 60 and starts to withdraw funds, even if he/she continues to work, neither contributions nor subsidies from the government will be transferred to his/her account.