After a previous government burned Polish employees by raiding their pension funds five years ago, the nation’s current leaders designed a new flagship savings plan with a Nobel prize-winning behavioral science theory to incentivize participation.
However, Poles might need more coaxing.
Polish Prime Minister Mateusz Morawiecki wants to convince people that assets will be out of reach for politicians, present and future.
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 assets managers, including NN Investment Partners, confirm that the initial participation rates in the program, which has been rolled out to the biggest companies since July, is about 40 percent, compared with the government’s 75 percent target.
This might reduce the scale of flows to Poland’s capital market, projected at 15 billion zloty (US$3.9 billion) annually.
The voluntary system, which includes incentives and offers a default option of enrollment, is based on behavioral theory research that won Richard Thaler the 2017 Nobel Prize in Economics, according to Pawel Borys, one of the plan’s architects and the head of Polish state investment fund PFR SA.
The plan puts aside 2 percent of employees’ salaries into funds. Employers top up their workers’ pensions with a further monthly contribution of 1.5 percent, while the government chips in with bonuses in the early stages of the program. 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.
According to Thaler, a “nudge” is any aspect of a program that alters people’s behavior 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 does not, he said.
“The level of trust in the pensions system is small after the 2015 raid and changing the constitution could change that,” Borys told Bloomberg.
“We need stable regulations,” he said.
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 in 2014 to annul US$39 billion of government bonds held by privately run funds, duly assigning the liabilities to the state’s strained pay-as-you-go pension office.
The new system will not let the government dip into citizens’ savings, even if Morawiecki’s plan to change the constitution fails, according to its architects.
Nevertheless, the government is not 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 percent of the savers’ already accumulated assets.
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