Poland: New Scheme to Boost Retirement Savings to Cost Companies

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By Jan Stojaspal

Labor costs would increase in Poland if the government adopts a proposed new social security contribution system designed to increase individual retirement savings.

The proposal, which is under public consultation until March 15, is to create a so-called Employees' Capital Pension Scheme (PPK) that would require employers to contribute at least 1.5 percent of employees' gross wages to individual savings accounts.

Employees would be required to contribute at least 2 percent of gross wages under the PPK, and the state would supplement their contributions with a one-time payment of 250 zloty ($73.30)—a so-called welcome contribution—and 240 zloty ($70.40) annually for the duration of each account.

Employer and employee contributions would be in addition to already existing social security taxes, which amount to between 19.21 percent and 23.91 percent for employers and 13.71 percent for employees.

Instead of the PPK, employers would have the option of funding a so-called Employees' Pension Retirement Scheme (PPE), a voluntary retirement savings program already in existence, but their contribution would have to be at least 3.5 percent of employees' gross wages since the PPE does not require employee participation. This may prove a more attractive option in, for example, low-income sectors where any loss of net income due to higher employee contributions would be strongly felt, local tax practitioners say.

Three-Phase Launch

The proposal is designed to increase citizens' financial security and to stabilize public finances, a justification of the proposal said. In particular, it aims to reverse the situation where three quarters of Poles put away no money towards their future retirement needs.

A staggered launch of the PPK is envisioned, starting on:

  •  July 1, 2019, for employers with between 50 and 249 employees;
  •  Jan. 1, 2020, for employers with at least 20 employees; and
  •  July 1, 2020, for all remaining employers and the public sector.

Employees' enrollment into the PPK would be automatic unless they opt out.

‘High Time'

The creation of the PPK is a “necessary” and “good” step because people now entering the labor force are looking at pensions of only 25 to 30 percent of their last paycheck unless the system is reformed, Piotr Liss, a tax partner at RSM Poland in Poznan, told Bloomberg Law in a March 2 telephone interview.

It is “high time to do something,” Liss said. Otherwise, “we end up with a lot of pensioners with no money to live on and economic scenarios seen in such countries as Argentina.”

Efforts to financially secure employees' retirement will be of ultimate benefit to companies, Liss said. For now, however, it is mainly the additional labor costs they are seeing. To ensure employers do not attempt to avoid this obligation, the government intends to forbid under threat of criminal penalty their trying to influence employees' opt-out decisions.

Generosity in funding the PPK could make companies more competitive in a shrinking labor market, according to the government.

“The government thinks that employees will choose one employer over another based on how much money they pay for retirement,” Liss explained. “But I don't really think that this will be a driving factor. My experience is that most of the people are interested in the here and now.”

PPK vs. PPE

According to Joanna Narkiewicz-Tarlowska, a tax director at PwC Poland, the PPK would most likely replace a system of state-guaranteed private pension funds, known as OFEs, set up during a previous attempt to increase the nation's retirement savings by allowing employees to invest a part of their pension contributions in individual pension accounts.

Contributions to the OFEs, which were introduced in 1999, have been gradually restricted, however, and the government now plans to shut down the funds, Narkiewicz-Tarlowska told Bloomberg Law in a March 1 telephone interview.

According to Narkiewicz-Tarlowska, the choice between PPK and PPE is something companies need to spend time analyzing.

“What we advise our clients is to first have a brainstorming session regarding which plan is better-suited for them and their employees,” she said, adding that the PPE, which does not require employees to contribute, may be a more attractive choice for companies that employ a high proportion of young people, such as start-ups, IT companies, or financial services companies.

“These are companies which employ really young people who don't want to spend their money on future pensions yet,” she said.

According to Iwo Turecki, manager, people advisory services, Ernst & Young Tax Advisory in Warsaw, the choice between the PPK and the PPE involves a number of considerations.

For example, while the minimum employer contribution to the PPK is lower, employees may not like the fact that they too have to contribute. Another consideration is that the PPK is a new and at this point entirely theoretical concept, whereas the PPE is an established system that has proven itself to work.

The decision whether to opt for the PPK or the PPE may also depend on the company's employee profile, Turecki told Bloomberg Law in a March 1 telephone interview.

“If the company employs people earning substantial amounts of money, the minimum 2 percent under the PPK may not be that difficult for these people to pay as they may seek savings for future pensions anyway,” Turecki said.

“However, if the employees are earning minimum wages, any difference in their net income will be really crucial,” Turecki said. “So what entrepreneurs are also thinking about is that if they invest in the PPK and their competitor enters the PPE, it may happen that their employees will go to the other company because there they will not have to pay additional contributions.

To contact the reporter on this story: Jan Stojaspal in Warsaw at correspondents@bna.com

To contact the editor responsible for this story: Rick Vollmar at rvollmar@bna.com

For More Information

The PPK draft proposal is available in Polish here.

For more information on Polish HR law and regulation, see the Poland primer.

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