Poland Is Said to Plan Social-Security Boost From Pension Funds

(Bloomberg) -- Poland seeks to dismantle the remains of a pension system set up 20 years ago and use part of the assets to shore up public finances as the government embarks on a stimulus program, according to a person familiar with the government’s plans.

Within months, the cabinet plans to transfer most of the 162 billion zloty ($42 billion) worth of assets held in the system known as OFE to individual private pension accounts, with between 30 billion and 40 billion zloty going to a social-security fund, said the person, who asked not to be identified because the plans are not yet public.

Of the OFE assets, accrued from payments from into the system, Warsaw-listed stocks would go to the private accounts and the rest, such as cash and foreign securities, would feed the so-called Demographic Reserve Fund managed by the state’s social security office, according to the person.

While not directly flowing into the national budget, the transfer would shore up a part of public finances by reducing the amount the government would have to pay into the social security system. The news comes amid growing fiscal concern after the government’s announcement last month of an election-year stimulus package, which triggered a clash between Finance Minister Teresa Czerwinska and her cabinet colleagues.

The previous Polish government raided the OFE in 2014 -- taking about half of its assets, those held in government bonds -- in a move aimed at lowering public debt, which left privately-managed funds with equity-heavy portfolios.

From mid-2019, Poland is due to roll out a new voluntary, employer-provided pension program designed to emulate the U.S.’s defined-contribution 401(k) plan.

The person said that Czerwinska was in talks with the cabinet about finding savings of 8 billion to 12 billion zloty, or as much as 3 percent of public expenditure, in both 2019 and 2020, to help make room for the stimulus package. Along with improvements in tax collection, the move will keep Poland’s budget gap between 2 percent and 3 percent of economic output, according to the person.

--With assistance from Adrian Krajewski, Piotr Bujnicki and Konrad Krasuski.

To contact the reporter on this story: Wojciech Moskwa in Warsaw at wmoskwa@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net, ;Heather Harris at hharris5@bloomberg.net, Michael Winfrey

©2019 Bloomberg L.P.