The European Commission recently released the next edition of the “European Chapter”, that is, reports that assess the economic policy of each member state and its progress in convergence with other EU countries. Each report is accompanied by recommendations of the Council of the European Union.
Polish pensions. The replacement rate will shrink rapidly
According to the report, Poland, like other countries of the European Union, will age very quickly, which is confirmed by one of the biggest crises that our country is going through – the demographic collapse (more about it here). The number of people over 80 years old will increase by 4 percent. of the population in 2019 to 12 per cent. in 2060, resulting in increased spending on health care, long-term care and pensions.
a. Gertruda Jusica, President of ZUS, in a comment sent specifically to money.pl, however, emphasized that the currently established pension system is financially balanced. – The state guarantees the payment of subsidies and protects the real value of contributions from inflation. This shows that it is worth saving for retirement in ZUS. He explains that it is difficult to better secure the money that we accumulate over the decades of our professional activity.
The challenge highlighted by the European Commission is the need to ensure the adequacy of future benefits. The European Commission warns of this The replacement rate, i.e. the ratio of the amount of a future pension to the last salary, will fall from 54 percent. in 2019 to only about 25 percent. in the year 2060.
And the latest OECD report on this subject leaves no room for doubt. There is no difference between people who earn a lot or a little money in our country. The replacement rate in Poland will be among the lowest in developed countries. Similarly, alarming estimates apply only to Lithuania and South Africa.
– It must be emphasized that the individual replacement rates are highly variable and depend on the number of contributions paid by the insured person and at what age they will retire. The later this happens and the more contributions to this person are paid to the Social Insurance Fund, the more benefits he will receive. – says Professor Uścińska.
Poles’ expectations about retirement and a constantly lower replacement rate
ukasz Kozłowski, chief economist of the Polish Businessmen’s Union, who has been interested in the pension market in our country for many years, agrees with this approach. – Social expectations are that this gap between our last paycheck and our retirement isn’t that great. The Poles will not agree that their standard of living may drop significantly month after month – the expert explains in an interview with money.pl.
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In his view, dramatic estimates result from a simple rule – We will live longer and longer, and with this kind of simulation it is assumed that the retirement age in a particular country will not increase. – This means that the number of months of our life in which ZUS will pay our accumulated contributions will increase, which means that the nominal pension will be less and less – he adds.
In turn, according to prof. Uścińska, Cassander’s predictions in this regard are not entirely in place. He also asserts, despite the fact that the average replacement rate will decrease, pensions and their purchasing power will grow, for example Thanks to the payment of contributions from salaries that are increasingly higher than the career period of subsequent retirees and “thanks to the valuation of benefits and comparison of contributions”.
– Salaries of the working generation will simply grow faster than pensions and, accordingly, the replacement rate will decrease – concludes the head of the Social Insurance Institution.
We’ll have to work longer and start saving wisely
– There are other ways to encourage the expansion of economic activity and the European Commission recognizes, praising the introduction of PIT-0 for the elderly, that is, tax relief for the elderly who decide to work longer instead of receiving a pension – Professor comments.
Łukasz Kozłowski admits that according to a report by the Organization for Economic Co-operation and Development (OECD) a few years ago, the Polish pension system came in third in terms of incentives to keep working. The problem is that many of us are still thinking about the old system before the 1999 reform. Then it was the so-called initial capital, but after changes, the amount of pension we will receive depends only on us and on the contributions received. A great campaign to make citizens aware of how it works could be helpful – the FPP expert suggests, adding:
It must also be emphasized that government actions must be consistent in this context. For example, the fourteenth or thirteenth pension spoils this system, and even if a person pays one contribution, they receive a transfer from the state in the hundreds of zlotys. This discourages you from working longer – he warns.
Defined Contribution System
Let us remind you that the so-called defined contribution system that we adopted in Poland in the late 1990s. The principle is simple: What you put in the system, you get that much. In this case, the annuity is simply the sum of assessed contributions divided by life expectancy. The longer we live and work legally, the less interest we get.
After the reform, our pensions were not accrued with the initial capital, as was the case with previous benefits (ZUS was not able to replace the amount of people’s work, and therefore they assumed the appropriate amount in advance). These pensions are high, but the number of pensions in the system will decrease over the years.
ZUS analyzes show it that around 2040 the old-age pension share will be at a minimum, Which will speed up the decline in the pensions of the Poles, if they do not want to work longer.
Working longer pays off
In fact, in our pension system Postponing the decision to terminate professional activity for a year leads to an increase in the retirement pension by up to 10-15%.
– If we refrain from such a decision for 5-6 years, we can double our interest. This is confirmed by the data on record holders in the ZUS records. In Kujawsko-Pomorskie, a woman receives a benefit of close to 27 thousand. zloty. I worked for 61 years. However, it must always be repeated that the pension is a privilege, not an obligation – as the head of the Social Insurance Corporation explains.
As the Ministry assures us, the positive trend regarding the retirement of Poles has continued in the past few years. 2020 was to be a continuation of these good practices. 62.4 percent of people retired exactly at retirement age, 24.7 percent in less than a year of their completion, and 12.9 percent. At least one year after maturity.
For comparison, in 2017 as much as 88.3 percent. Someone who retired immediately, 7.7 percent. During the year 4.0 per cent. At least one year after maturity.
When writing about pensions, the incentive to save at one’s expense is a constant element of the discussion, regardless of disastrous demographic prospects or the mounting burdens on state finances.
At this point, it is impossible not to mention some of the options we have. Bowie Boris, head of the Polish Development Fund, has repeatedly stressed in an interview with money.pl this Income diversification is necessary to “have peace of mind” in old age.
Recently, three basic options for saving for old age were created in Poland. The first is the public system, that is, pensions from ZUS financed by public contribution, then the private system – voluntary, Where we can save with the employer and the state treasury, i.e. PPK And the third, also voluntary – the system of Individual Retirement Accounts (IKE).
Prepare for low pensions. Disturbing conclusions from the OECD report
This will happen because the amount of pensions in Poland is automatically correlated with demographic indicators, a Poland’s population will age faster than the OECD average – Dr. Maciej Lis explained. He added that the thirteenth pension, permanently introduced in 2020, will only lead to a slight improvement in the situation of future retirees.
– Current regulations anticipate growth on average retirement age 64 to 66 in OECD countries over the next 40 years, and Poland among the 17 countries where no increases are expected. With the exception of Poland, only in Colombia, Israel, Switzerland and Hungary, the law does not provide for an equal retirement age for women and men. In Poland, the ratio is 65 for men and 60 for women – remember Liz.
Damian Szymański, Deputy Editor-in-Chief of money.pl
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