POLAND - Polish lawmakers have begun debating pension changes proposed by the government that are opposed by almost half of the country's voters before elections expected within seven months.
The plan to cut transfers to private pension funds by more than two-thirds to 2.3% of employees' salaries in a system enrolling millions of Poles is aimed at trimming the budget gap and keeping public debt from breaching the legal limit of 55% of gross domestic product, which would trigger mandatory austerity measures.
The largest of the European Union's eastern economies needs to cut the shortfall from an estimated 8% of GDP last year to 3%. Brussels may punish Poland for an excessive deficit by reducing its eligibility for the EU funding that helped generate growth in 2009, making it the only member of the bloc to avoid a recession that year.
"The debt spiral created by this system gives us no choice but to downscale it," Prime Minister Donald Tusk told parliament in a speech opening the debate. "If we leave the pension funds alone, as some ask, then we have to explain how we plan to raise the money from the taxpayers."
Like other European countries, Poland is struggling to find ways to cut public spending, which ballooned during the global financial crisis, and bring the deficit back to within the EU's limit of 3% of economic output.
The ruling party "had to agree to the very unpopular pension reforms, given its inability to contend with what it considers even more politically damaging fundamental expenditure reforms," Peter Attard Montalto, a London-based economist at Nomura International said in a March 9 note to clients.
Rather than targeting social spending, the government opted to partially roll back a decade-old overhaul that diverted pension contributions to private funds, aimed at alleviating the budget burden when those enrolled retire.
Hungary last year first suspended similar payments completely, then funnelled most fund assets to the state.
"The government is tossing out life rafts and worrying about how to stay afloat until the election," said Beata Szydlo of Law & Justice, the biggest opposition party, in a reply to Tusk's speech. "Pension changes shouldn't be used as a budget stopgap."
A survey by the Warsaw-based Public Opinion Research Centre on February 4 showed 49% of adult Poles were against the pension proposals, while 18% were in favor and 33% had no opinion. No margin of error was given.
While Tusk wanted the law to take effect on April 1, disputes with economists, labour unions and employers, as well as within the government, led to a delay. The Cabinet now targets May 1 for the law to take effect, though lawyers at the prime minister's office said the legislation may be unconstitutional, TVN CNBC reported on March 8. According to the Finance Ministry, each month of delay implies spending will increase by 0.07%of GDP.
"Maintaining this system means an outflow of 2bn zlotys ($681.9m) every month," Tusk told parliament.
The Pensions and Lifetime Savings Association (PLSA) has revamped the standards for its Pension Quality Mark (PQM) in a bid to raise the quality of single-employer defined contribution schemes.
People approaching retirement are "systematically misjudging" their longevity and undervaluing annuities, the Institute for Fiscal Studies (IFS) says.
Professional Pensions is holding a breakfast briefing on engaging defined contribution (DC) members on 7 February.
Panellists at a PP webinar discuss October's High Court judgment on GMP equalisation, how schemes have responded, what their strategies should be, and how the industry can approach it.