Poland to shift $43 billion to private pension accounts

Poland plans to overhaul its pension system in a way that ends uncertainty over the future of assets managed by privately held pension funds and helps the government avoid widening the budget deficit. Polish stocks fell and government bonds rose.

The government proposed transferring all of the 162 billion zloty ($43 billion) of assets in the privately managed part of the pension system known as OFE to individual pension accounts, Prime Minister Mateusz Morawiecki said Monday in Warsaw. The state-owned social security fund will pick up a one-time 15% fee in the process. The cabinet sees the move as neutral for the stock market.

"We want to tidy up the pension system and finally privatize the funds' assets," Mr. Morawiecki told reporters. "We're reconstructing the system for pensioners, and for the economy as a whole."

The change is a rewrite of a plan introduced by Poland about two decades ago when it created privately managed pension funds that invested part of contributions to the state pension system. The OFE funds have already been crippled by changes made by the previous government in 2014 when it took over all government bonds held by the pension funds, or over half of their assets, to reduce public debt.

The plan announced Monday means there's a lower risk of the government taking over assets held in OFE accounts, mainly stocks.

"The decision reduces one of major risk factors that derated Polish stocks in the last few years," Anton Khmelnitski, a fund manager at EC Elbrus Capital Investments in Zurich, said by phone. "The government took a more market-oriented, pragmatic step."

The change will also provide some relief for the state budget, tested by a pre-election spending binge. It will reduce the risk of the deficit going beyond a European Union limit of 3% of gross domestic product, according to analysts at Erste Group Bank AG and Bank Millennium SA.

"This is good short-term news from the point of view of public finances, though longer term it's not, because it's a one-off," Grzegorz Maliszewski, chief economist at Millennium in Warsaw, said by phone.

The transfer of assets will likely take effect at the beginning of 2020. The change will follow the rollout of a new voluntary, employer-provided pension program emulating the U.S. defined-contribution 401(k) system, scheduled for later this year.

Warsaw's benchmark equity index WIG20 fell as much as 0.7% after the announcement and ended the session at the lowest since April 5. Poland's two-year government bonds rallied, with the yield dropping 5% to 1.62% in the biggest decline since January.