The Demographic Reserve Fund - ZUS
The Demographic Reserve Fund
The Demographic Reserve Fund
3 November 2020
The Demographic Reserve Fund (Fundusz Rezerwy Demograficznej, FRD) was established in 2002 based on the Act of 13 October 1998 on the social insurance system and is a contingency fund for the old-age pension fund separated from the Social Insurance Fund. The Demographic Reserve Fund has its own legal status and the Social Insurance Institution is its administrator.
A decision on making FRD funds available may be taken by the Council of Ministers or – up to the amount determined in FUS financial plan – also by the ZUS Management Board. In such case, the Council of Ministers orders to use FRD resources to guarantee the payment of benefits financed from the old-age fund.
Revenues of the FRD are composed of:
- a part of old-age pension contributions,
- monies derived from the privatisation of State Treasury assets and properties,
- profit derived from investments,
- interest earned on deposit accounts run by ZUS, which are not the incomes of FUS and ZUS,
- revenues from other sources.
To ensure the security and rate of return of its resources, the Social Insurance Institution invests FRD funds in certain financial instruments.
According to the main objective of the investment policy, which is to achieve maximum security combined with the profitability of the funds invested, Treasury securities predominated in the FRD portfolio. The average annual share of Treasury securities in the total portfolio amounted to 79.2% and the rate of return generated in this part of the FRD portfolio was 3.14%. The adopted benchmark, i.e. the December year-on-year inflation, amounted to 1.1%, so the rate of return on this part of assets was higher than the adopted benchmark by 2.04 percentage points. The achieved result was reflected in the fact that in the 2nd quarter FRD was ranked among 25 debt funds of Polish Treasury securities.
The return on the share portfolio amounted to −7.66% and was 1.84 percentage points higher than the adopted benchmark (changes of WIG index). The average annual share of equities in the Fund’s portfolio was 11.92%. The results achieved in the equity part allowed FRD to take 6th place among 59 funds investing in this market segment.
The rate of return on all assets managed by FRD amounted to 1.58%, and the result on operations reached PLN 621.23 million. In terms of profitability, FRD was ranked first among 34 stable growth funds with a similar investment profile. At the same time, the result achieved was higher than the average achieved by these funds by 6.10 percentage points.
FRD may be used only to:
- cover such deficit of the FUS old-age pension fund which is due to demographic reasons,
- grant a no-interest loan to complement the FUS old-age pension fund for the purpose of current payments; the loan is aimed to ensure the liquidity of the Social Insurance Fund and should be repaid within 6 months from the day of its receipt.
In the period from 2009 to the end of 2016 the FRD account was credited with a total of PLN 20.26 billion in respect of the State Treasury assets from privatisation. And in the period 2010–2014 an amount of PLN 19.39 billion was transferred from FRD to the old-age pension account.
Moreover, in 2018, bonds worth PLN 12.72 billion, issued by Bank Gospodarstwa Krajowego, were transferred to FRD from an off-balance sheet item. FRD account was also credited in December 2018 with funds transferred from the state budget, in the amount of PLN 2.0 billion.
At the end of 2018, total assets of the Demographic Reserve Fund amounted to PLN 42.43 billion.