WARSAW - Poland has put in place the most advanced framework in Eastern Europe for reforming the country's first- and second-pillar pension systems, but it is the opportunities in the third-pillar market that look the most interesting now, according to local money managers.
A number of local firms are looking to register company-sponsored pension funds, and money managers such as PTE Pioneer SA and Commercial Union Polska Financial Services Sp. zoo, both of Warsaw, are exploring setting up these schemes.
In Eastern Europe, the first pillar of retirement saving is the creaking state security systems that are nearly always pay-as-you-go and are funded by a portion of individuals' social security contributions that are collected through employers. The rest of the social security contributions go into second-pillar funds, which are generally provided by private money managers and allow individuals to choose where they want the assets held. Companies do not contribute to these defined contribution plans. Company pension plans set up in addition to the social security arrangement are considered third-pillar savings.
Large local employers Elektrim SA and state-owned telecommunications company Telekomunikacje Polska, both of Warsaw, already have applied to the Polish pension funds regulator Superintendency for Pension Funds, or UNFE, to set up their own pension funds, said Pawel Pelc, UNFE's deputy head of pension supervision.
List of woes
Money managers are disappointed with the commercial opportunities in the second pillar. Ask almost anyone in the market and they will reel off a list of woes.
Almost 10 million people have signed up for the mandatory state-backed pension system; total assets under management were $1.3 billion at the end of June; and there are 21 firms managing money. But the scheme is offering a replacement rate of 50% to 70% of salary upon retirement. Demand for third-pillar plans will increase as Polish citizens start to realize their savings won't go very far in retirement, said Martin Wojewodka, deputy manager at William M. Mercer Sp zoo, Warsaw.
Another problem has been that the social insurance office that collects employer contributions and sends them off to each citizen's fund of choice, has a backlog of payments. Although the money has been collected from employers, only 70% of the last two years' contributions have been paid to the fund managers, said Zygmunt Kostkiewicz, president of PTE Commercial Union, Warsaw. PTE Commercial manages assets for Poland's largest second-pillar pension scheme and has 3.2 billion zlotys ($780 million) in assets under management, he said. Had the social insurance office, known as ZUS, been doing its job properly, he added, the plan would have more than $1 billion in contributions by now.
It is relatively simple to go through the paperwork and find out where payments have not been transferred and ZUS has offered to reimburse individuals on the interest they may have missed.
But money managers say they have not been able to claim their full management fees, calculated as a percentage of client contributions, because they have not yet received all contributions. Payments from ZUS are showing signs of improvement, however, and it is hoped the system will be functioning properly by the beginning of next year.
Money managers also complain that UNFE is blocking what they say is a necessary consolidation in the market. Executives at some of the smaller firms say consolidation among managers would help improve economies of scale and make it commercially viable for them to continue to participate in the system. Krystof Rosinski, president of PTE Bankowy, Warsaw, which manages the country's seventh-largest pension fund, believes there should be only 10 money managers in the second pillar to generate sufficient economies of scale.
But UNFE wants citizens to have choice and that it will support consolidation of fund providers only if there is no threat of creating monopolies. Consolidation among some of the small money managers and possibly midsized managers will be allowed but is unlikely among the largest 10 funds, Mr. Pelc said.
So insurers, money managers and new entrants into the Polish pension market are looking to the third-pillar market. But so far, only a few company plans have been set up. Polish companies aren't under any pressure to add such plans. With unemployment at 15%, pensions aren't needed to attract or retain staff.
The main problems with setting up third-pillar funds are a lack of tax incentives and the fact that only employers are allowed to contribute.
Mr. Voyevudka believes the market would grow fast if employees were allowed to contribute and contribution matching were allowed.
Alicja Malecka, the former head of the Warsaw operation of Pioneer, said the process of setting up an employer-sponsored savings plan is cumbersome. She left Pioneer after it was acquired by UniCredito. She is setting up her own company and working on encouraging more U.S. asset managers to open operations in Poland and to help develop the local capital market.