Poland's lower house adopts controversial pension reform
December 9, 2013
Poland's Sejm lower house on Friday approved the much-discussed legislation to overhaul the pension system that will put government bonds held by private pension funds back to the state, a move that some have called unconstitutional.
After a stormy debate, the government-authored bill passed with 232 votes in favor, 216 votes against and with one abstention.
The bill still needs to be approved by the Senate upper house and by President Bronislaw Komorowski. The legislation will likely face a test at the country’s Constitutional Tribunal. The public debate brought out a number of warnings that specific elements could prove unconstitutional.
"I am convinced and I hope that the changes are compatible with the Constitution. But such matters are decided by the Constitutional Tribunal. If the bill is referred to the tribunal, we will be able to present our position," Labor Minister Wladyslaw Kosiniak-Kamysz said after the vote.
Poland’s present pension system has two pillars: the state-guaranteed ZUS social security system and 14 privately managed pension funds (OFE).
Under the overhaul to take effect February 3 OFE will have to transfer their government bond holdings — worth some PLN 140 billion, or about 51.5% of their assets to ZUS. They would also be banned from investing in government debt starting in 2016. However, the funds will be allowed to keep the remaining 48.5% of their stock holdings.
“We’re proposing this measure out of a sense of responsibility for current and future retirees, public finances and financial markets,” Kosiniak-Kamysz said.
According to Poland’s Finance Ministry the step will allow to reduce public debt by 8% of GDP.
The government-sponsored changes to the country’s three-tier pension system have sparked controversy, including concern that canceling bonds would amount to uncompensated expropriation.
Amongst last minute changes to the government version, the bill hiked the cap on investment in single company securities to 10% of AuM from 5%.
Other potential changes were not immediately visible as the ruling party Civic Platform (PO) worked to avoid over 1,017 amendments submitted by opposition parties by passing the bill as a single massive amendment to its own legislation, rewriting the bill from scratch, potentially with select amendments of its own design. MP's complained loudly that they had not had time to compare the new version with the original.
Poles will have four months to decide next year whether to funnel all their pension contributions into ZUS or to continue to split them between ZUS and OFE. They’ll be able to review their decision in 2016.
According to a recent survey by CBOS researcher the overhaul is opposed by 53% of Polish voters.