Poland debates controversial pension reform

AP News
Posted: Oct 11, 2013 6:17 AM

WARSAW, Poland (AP) — Poland's government has opened a debate Friday on a controversial plan to transfer part of pension savings from private funds to a state account.

The government argues it would reduce risk for pension savings, but critics say the state wants the money on its books to make up for an unexpected deficit in public accounts.

Under the plan announced late Thursday, private pension funds would have to transfer their government bonds to a state account, called ZUS, but would be allowed to keep stock. Every Pole will have to decide by June whether to stick with only the state fund or have a private one, too.

Prime Minister Donald Tusk's government says private funds weigh pension investments too heavily toward shares, arguing that could result in low pensions if financial markets drop, as they did during the financial crisis.

Many Poles, however, are angry over the need to make a decision on their financial future while not fully understanding its potential effects. Opinions from experts range from praise of the reform to accusations that the government is planning a seizure of private money.

Critics also argue that by suddenly changing the rules, the government risks appearing less reliable, both with Poles and with the foreign managers running the private funds.

The current system linking ZUS with private funds was introduced in 1999 and was supposed to guarantee pensions much higher than could be expected from ZUS alone. Before 1989, under communism, ZUS pensions were small as its funds were often used to fuel the state coffers. That memory adds to the general distrust of the reform.