Picture: 123RF/FLYNT
Picture: 123RF/FLYNT

Warsaw — After a previous government burnt Polish employees by raiding their pension funds five years ago, the country’s current leaders designed a new flagship savings plan with a Nobel prize-winning behavioural science theory to incentivise participation.

As it turns out, the sceptical Poles may need more coaxing.

So prime minister Mateusz Morawiecki wants to convince them that the assets will be out of reach for politicians, present and future. And to show that he’s serious, he surprised lawmakers and analysts this week by proposing to do something unprecedented: amending the constitution for the first time since it was adopted in 1997.

Reports from asset managers, including NN Investment Partners, confirm that the initial participation rates in the programme, which has been rolled out to the biggest companies since July, is roughly about 40%, compared with the government’s 75% ambition.

This may reduce the scale of flows to the country’s capital market, projected at 15-billion zloty ($3.9bn) annually. Money managers hope that the pension savings programme will revive Warsaw’s stock exchange.

The voluntary system, which includes incentives and offers a default option of enrollment, is based on behavioural theory research that won Richard Thaler the 2017 Nobel economics prize, according to Paweł Borys, one of the plan’s architects and the head of Poland’s state development fund PFR.

The plan puts aside 2% of employees’ salaries into funds. Employers top up their workers’ pensions with a further monthly contribution of 1.5% while the government chips in with bonuses in the early stages of the programme. The incentives are meant to “nudge” reluctant Poles to begin saving and to limit departures, as in such cases the bonuses would be lost and different taxes would apply.

Transfer fee

According to Thaler, a “nudge” is any aspect of a programme that alters people’s behaviour in a predictable way without forbidding any options or significantly changing their economic incentives. Putting fruit at eye level counts as a nudge but banning junk food doesn’t, according to the Nobel laureate.

“The level of trust in the pensions system is low after the 2015 raid and changing the constitution could change that,” Borys told Bloomberg. “We need stable regulations.”

The previous pension system, set up in 1999 and based on the then-touted Chilean defined-contribution model, proved vulnerable for savers. Their assets were ultimately determined as being part of the public sector, which allowed Poland to annul $39bn worth of government bonds held by privately run funds in 2014, duly assigning the liabilities to the state’s strained pay-as-you-go pension office.

The new system won’t let the government dip into citizens’ savings even if Morawiecki doesn’t manage to change the constitution, according to its architects.

Nevertheless, the administration isn’t helping itself to build faith in its proposal by planning a “transfer fee” for moving employees from the old system to the new one — at a cost 15% of the savers’ already accumulated assets.

Bloomberg