Poland Moves Forward on Bill That Would Transfer Private Pensions to State

(from NYT 11 Oct 2013)

Ignoring warnings that it could deter foreign investment, the Polish government has announced a draft bill that would require private pension funds to transfer about 35.2 billion euros, or $47.6 billion, in government bonds to the state in February.

Critics have likened the move to a Soviet-style nationalization of private assets, or an asset seizure. Plans for the bill, which was introduced on Thursday, alarmed some international investors and aroused strong criticism from economists, the business community and senior members of the government.

But the center-right government of Prime Minister Donald Tusk insists that the pensions revamp is nothing more than an accounting change that will not undermine pensioners. Moreover, it says that the changes do not amount to nationalization since the private funds will still manage equities.

Adam Jasser, secretary of state and a member of Mr. Tusk’s economic policy team, said in an interview on Friday that it was within the government’s legal right to make the transfer because the private funds had been managing public retirement funds as part of the state social security system, with the government taking on all the risks.

He noted that when Poland adopted a hybrid pension system in the 1990s, under which a portion of workers’ contributions were transferred from the state pay-as-you-go system to private pension funds, it was never intended to be a privatization of the pension system, because the privately managed funds remained part of the state system. He added that the hybrid system had proved costly and unworkable for the state and had imposed an unnecessary funding squeeze on the government that had been laid bare during difficult economic times.

“This is not nationalization,” Mr. Jasser said by phone from Warsaw. “All we are doing is moving assets from one part of the state system to another.”

The Civil Development Forum, a foundation established by Leszek Balcerowicz, a respected former finance minister credited with liberalizing the Polish economy after the fall of communism in 1989, called the government’s bill “an easy heist of Polish pensioners’ funds.”

Most of the private funds are owned by big foreign money managers, including ING, Aviva, Allianz and Generali. Altogether, the private funds hold assets worth about 68 billion euros, or more than one-fifth of Poland’s gross domestic product.

The Polish government, which has faced public dissent over austerity measures, faces an election in 2015, and analysts say the changes are part of a move aimed at improving its financial breathing room to borrow and spend.

Under the changes, the government plans to cancel the bonds, which will reduce the government’s debt by around eight percentage points, Mr. Jasser said. He said that pensioners would receive a financial commitment from the state equivalent to their transferred assets.

Yet for all the assurances by the government, criticism of the overhaul has not abated. The government, which has a slim majority in Parliament, is expected to be able to pass the bill, though it could still be sent back to Parliament by President Bronislaw Komorowski, who was elected as the candidate of Mr. Tusk’s Civic Platform party but is officially nonpartisan.

Privately managed funds in Poland have indicated they are considering a legal challenge to the bill in the country’s constitutional court, and the Polish Chamber of Pension Funds recently sent a letter to José Manuel Barroso, the European Commission president, asking him to give an opinion on the overhaul.

If the legislation passes, the European Commission can review it and take legal action if it deems it to be incompatible with European Union law.