Poland Attempts To Reduce National Debt By Dipping Into Pension Funds

ELISE HILTON blog.acton.org Poland’s prime minister, Donald Tusk, announced Wednesday that the government would attempt to cut government debt by taking money from its citizens’ private pension funds. Poland currently has a two-fold pension system: mandatory contributions are made to the state pension fund and then to private funds. It is the state funds, known as ZUS, that the Polish government plans to “transfer” money from. According to Reuters:

…Prime Minister Donald Tusk said private funds within the state-guaranteed system would have their bond holdings transferred to a state pension vehicle, but keep their equity holdings. He said that what remained in citizens’ pension pots in the private funds will be gradually transferred into the state vehicle over the last 10 years before savers hit retirement age.

Clearly, not everyone is happy with this plan, and some are calling it unconstitutional. However, Finance Minister Jacek Rostowski stated that the government hoped to reduce Poland’s debt by about eight percent of that nation’s GDP. Poland’s market did not respond well to the news, dipping slightly the day of the announcement. An unnamed executive at a pension fund said,

This is worse than many on the markets had feared,” a manager at one of the leading pension funds, who asked not to be identified, told Reuters. “The devil is in the detail and we don’t yet know a lot about the mechanism of these changes, what benchmarks will be use to evaluate our performance… (It) looks like pension funds will lose a lot of flexibility in what they can invest.”

One official said that private pension funds may close all together due to this move. This move by Polish officials mirrors what happened in Greece last year, when workers and retirees lost around 10 billion euros ($13 billion) due to that government’s “debt restructuring.” While one Bank of Greece official referred to the move as a “haircut” of pensions, citizens didn’t feel that way:

Among individuals on the receiving end of the losses is Constantine Siatras, 79, a retired lieutenant-general, who says his income has fallen by 33 percent during the crisis. to read more click here: blog.acton.org