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Wednesday, March 3, 2021

OFE – liquidation. KO MPs Izabela Leszczyna and Joanna Frydrych criticize the government’s reform of open pension funds

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The government’s reform of Open Pension Funds boils down to a choice that can be compared to a decision: whether to cut off your right arm or left leg, stated Civic Platform deputies Izabela Leszczyna and Joanna Frydrych.

MEPs organized a press conference in connection with OFE reform project, prepared by the government and approved by the Standing Committee of the Council of Ministers.

Joanna Frydrych recalled that under the OFE reform carried out by the PO government in 2014, part of 7.3 percent. the contributions were transferred to individual retirement accounts at ZUS.

Liquidation of OFE

In turn, the PiS government announced the liquidation of OFE in 2016. According to the project recently approved by the Standing Committee of the Council of Ministers, said Frydrych, the money remaining in OFE can be transferred to Individual Retirement Accounts at ZUS, which means that you lose 15 percent. savings. On the other hand, the alternative option – transferring money to the basic ZUS account – results in the loss of the right to inherit.

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“This choice is like choosing whether to cut off your right arm or left leg,” Frydrych assessed.

– And so you lose, and so you lose – there is no good choice here – added Izabela Leszczyna.

For the capital market, the liquidation of OFE means, said Leszczyna, the nationalization of a large part of the market and its takeover by the state-owned Polish Development Fund. “Fat millions will flow to PiS nominees again, or they will be invested in the CPK or the Vistula Spit ditch” – noted the KO deputy.

OFE reform project

The draft act amending certain acts in connection with the transfer of funds from open pension funds to individual pension accounts provides that OFE participants will be able to choose whether the funds accumulated will go to IKE, run in specialized open-end investment funds created as a result of the transformation of OFE, or whether they will be transferred to account in ZUS. The project shows that the selection can be made from June 1, 2021 to August 2, 2021.

A fee equal to 15 percent of the assets will be payable for the conversion, the payment of which will be spread over two years. Specialist open-end investment funds will be required to pay it.

Persons who decide to join ZUS will have to complete and send an appropriate declaration. The lack of such a declaration means that the funds will be automatically transferred to IKE. In the event of transferring funds there, the so-called the transformation fee for the Social Insurance Fund in the amount of 15% the value of OFE assets. Its payment will be divided into two installments: in the amount of 70 percent. and 30 percent, both paid in 2022.

It was noted that the money transferred from OFE to IKE, as opposed to ZUS, will be inherited, and after reaching the retirement age, they can be paid out in full or in installments and will then be free of any taxes.

The proceeds from the fee, which will be transferred to the Social Insurance Fund, are to amount to approximately PLN 11 billion in 2022. The entry into force of the act will result in a significant increase in funds in the Demographic Reserve Fund.

Deputy Minister of Funds and Regional Policy, Waldemar Buda recently informed that according to the data at the end of January this year. over 15 million Poles have accumulated about PLN 149 billion in savings in OFE, which on average gives 9-10 thousand. PLN per person.

The draft provides for the Act to enter into force on June 1, 2021. In the justification, we can read that the regulations will implement the assumptions adopted by the government in the Plan for Responsible Development.

“The currently functioning OFEs are not justified because they do not meet the original goals and assumptions in the form of, among others, payments of pensions from the capital pillar, inheritance and a long-term stream of retirement benefits from the private system. OFE do not ensure risk diversification and do not increase the social security of the insured” – we read.

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Controversies

The transformation fee is the most controversial in the entire reform. – This conversion fee – 15 percent – is just tribute. – said the then head of Nowoczesna Katarzyna Lubnauer in 2019. – I do not know (…) a bank that would take 15 percent of us in any fee or commission. This is a simple tribute, this is simple simple theft, how to steal 15 percent from us and call it that it is for our good, that they are privatizing something, that they want to help us – she said in TOK FM. In her opinion, this is “just a cash register”.

From the point of view of the government, the conversion fee represents a massive injection of cash as the state treasury grapples with the effects of the economic crisis caused by the pandemic, with costly social promises at the same time.

The government has prepared four variants of estimated revenues from the transformation fee payable to the Social Insurance Fund. The maximum amount may be PLN 22.29 billion, assuming that 100 percent of current OFE members will be transferred from OFE to IKE.

Proceeds from the transformation feeRCL

There is also a reservation that the shares owned by the Open Pension Fund will pass under the control of the state-owned Polish Development Fund. – It can really mean nationalization of private companies. The state will be able to take control of them, introduce its people to the management board and supervisory board and decide, for example, what with dividends or what is worth investing in – said Dr. Antoni Kolek, head of the Pension Institute, in an interview with Gazeta Wyborcza .

Main photo source: Shutterstock



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