Pension funds (PTE PZU)

Market situation

At yearend 2019, the net asset value of open-end pension funds was nearly PLN 155 billion, down 1.6% compared to the end of the previous year.

Operations of PTE PZU

The PZU Złota Jesień Open-End Pension Fund managed by PTE PZU (PTE PZU) is one of the largest players on the pension fund market in Poland. At the end of 2019, OFE PZU was the third largest pension fund, both in terms of the number of members, as well as in terms of net asset value:

• the fund had 2,375 thousand members, i.e. 15.2% of all participants in open-end pension funds;
• net assets stood at nearly PLN 22 billion, thereby representing 14.0% of the total asset value of the open-end pension funds operating in Poland.

Open-end Pension Funds - percentage of net asset value as at 31 December 2019 (in %)

Source: KNF, monthly data on the OFE market, Data for December 2019

At yearend 2019, PZU’s Voluntary Pension Fund ran 29.9 thousand individual pension security accounts (IKZEs) in which assets worth nearly PLN 255 million were accumulated. Consequently, it retained its position as one of the leaders in the segment of voluntary pension funds.

Factors, including threats and risks, which will affect the pension funds’ operations in 2020

The main challenges facing the pension fund market in 2020 are the following:

• the economic climate on the capital market and, in particular on the Warsaw Stock Exchange, affecting the value of assets of the funds and the level of fees collected by pension fund companies for management;
• opportunities arising from the achievement of the objectives specified in the Capital Accumulation Scheme and the Responsible Development Strategy the pursuit of which will depend on the development of detailed solutions and the entry into force of necessary legislative changes;
• active participation in work on the adoption of solutions enhancing the performance of the third pillar and making it more attractive, and influencing the need in public awareness for accumulating additional savings for future retirement;
• transfer of funds from open-end pension funds to individual retirement accounts. The act is to enter onto force on 1 June 2020.

On 13 February 2020 the Lower House of the Republic of Poland adopted the act of amendment of certain acts in connection with the transfer of funds from open pension funds to individual accounts retirement. The act is to enter into force on 1 June 2020 passing the legislative process. Assumes model rebuilding OFE operations in such a way that:

• universal pension fund management companies (PTEs) which currently manage open-end pension funds (OFEs) and voluntary pension funds (DFEs) will be transformed into mutual fund management companies (TFIs);
• OFEs and DFEs will become specialist open-end mutual funds (SFIOs) that will be managed by TFIs;
• an OFE member will have the following options what to do with the funds accumulated on his or her OFE account:
• the default option will be the transfer of funds from the OFE account to an individual retirement account (IKE) with the possibility of continued payment of contributions on a voluntary basis. The transfer of funds from OFE to IKE will be subject to a 15% transformation fee. Payment of this fee will be spread over a period of 2 years. The disbursement of pensions from IKE will be exempt from income tax, and savings accumulated in IKE will be inheritable,
• OFE members may submit a declaration on the transfer of assets from OFE to the Demographic Reserve Fund (FRD) at the Social Insurance Institution (ZUS) and have the value of the transferred funds added to their capital accumulated on the Social Insurance Fund (FUS) account. There will be no conversion fee if the OFE member selects this option. The funds accumulated in ZUS will not be inheritable, and future pensions will be subject to income tax in accordance with the rate of the applicable tax bracket,
• under the umbrella SFIO established as a result of the transformation of OFE, a pre-retirement sub-fund will be spun-off for the accumulation of assets owned by fund participants approaching the retirement age,
• the investment policy of the pre-retirement fund will be aligned with the age group of the insureds, meaning that the fund’s investment risk will be significantly limited by statutorily imposed investment limits,
• the fees charged by the mutual fund management company for managing the assets of open-end pension funds transformed into individual retirement accounts as well as all other fees and costs will be strictly limited.

The basis for the operation of the transformed open-end pension funds will be the amended Act on Individual Retirement Security Accounts and Individual Retirement Accounts and the Act on Mutual Funds and Management of Alternative Investment Funds. The bill provides for amendments to several dozen statutes directly related to the operation of open-end pension funds and the social insurance system.

The bill does not provide for any transition period for adjustment of the operations of a universal pension fund management company transformed into a mutual fund management company to the new regulations. From the day of transformation into a mutual fund management company, the universal pension fund management company will be required to apply the provisions of the Act on Mutual Funds and the implementing regulations to this Act as well as the provisions of Community law pertaining to collective investment institutions and managers if collective investment institutions, in particular Commission Delegated Regulation (EU) No 231/2013 of 19 December 2012 supplementing Directive 2011/61/EU of the European Parliament and of the Council with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision.