The role of funded pillar in pension schemes Zbigniew Derdziuk the President of Social Insurance Institution Moscow, 1st November 2011

2 Projected demographic changes low fertility rate longer life expectancy affect on rising of dependency ratio The role of funded pillar in pension schemes Moscow, 1st November 2011 Analysis – the baseline situation (1)

3 Raising dependency ratio threatens the financial stability of pension schemes based on total PAYG financing high a budgetary burden (nominal and percentage) high share of budget subsidies according to GDP Analysis – the baseline situation (2) Moscow, 1st November 2011 The role of funded pillar in pension schemes

4 resistant to demographic changes financing benefits postponed in time potential possibility to achieve significant rates of return in the long term Advantages of funded pillar Moscow, 1st November 2011 The role of funded pillar in pension schemes

5 sensitive to changes in the economy expensive in maintaining than the NDC system difficulty in choosing a pension fund (Poland: choice 1 within 14 OPF) Disadvantages of funded pillar (1) Moscow, 1st November 2011 The role of funded pillar in pension schemes

6 Unpredictability of future benefits because of the long time horizons for investing funds in capital markets The difficulty in securing adequate indexation of benefits who would cover the cost of indexation - State or pay-out institution Disadvantages of funded pillar (2) Moscow, 1st November 2011 The role of funded pillar in pension schemes

7 The amount of benefits depends on accumulated capital and the age of retirement, but also important is the economic situation in the period before retirement Unsatisfactory level of benefits in case of long-term low-income or breaks in employment (unemployment, long-term illness, childcare) Disadvantages of funded pillar(3) Moscow, 1st November 2011 The role of funded pillar in pension schemes

8 each pension reform requires a full analysis including the step of paying benefits, security guarantees and the indexation of benefits each pension scheme requires the corrections concern for maintaining the stability and predictability of the system adjusting to changes in economic conditions and economic forecasts ensuring trust, security and sense of justice Findings (1) Moscow, 1st November 2011 The role of funded pillar in pension schemes

9 In order to maintain the stability of the pension system will be necessary to choose (prof. N. Barr): reducing amounts of benefits increasing amount of pension contributions raising the retirement age (adjustment to labour market) stimulating economic growth Findings (2) Moscow, 1st November 2011 The role of funded pillar in pension schemes

10 general old-age pension contribution – 19.52% of gross salary Old system – total contribution goes to the first pillar – SIF New system (obligatory for persons born after 31 December 1968) – contribution is divided between SIF and OPF Since 1999 all contributions are recorded on the individual account of insured person. Supplement – present situation in Polish pension scheme (1) Moscow, 1st November 2011 The role of funded pillar in pension schemes

11 Contribution cutting to OPF after 1st May 2011 I pillar II pillar SIF OPF before  12.22% + 7.3% =19.52% now  12.22% + 5.0% + 2.3% =19.52% subaccount in SIF Supplement – present situation in Polish pension scheme (2) Moscow, 1st November 2011 The role of funded pillar in pension schemes

12 Since 2009 ZUS has started paying out the temporary old-age pension from the new system - only women (60-65) are entitled From 2014 the annuity old-age pension will be paid out - for all Pay-out institution to be defined. Completing the pension reform in Poland Moscow, 1st November 2011 The role of funded pillar in pension schemes

Website: