Influence of pillar 3 of pension system on retirement pensions level in Poland : will voluntary part of system enable decent life in old age?

Abstract

PURPOSE: The aim of this paper is the comparative analysis of the general saving ways included in pillar 3 of the pension system and showing their potential effectiveness from the perspective of the pension system participant. Will the resources allocated by the instruments of the voluntary pension system part significantly improve the level of the future pension? Will they allow a more decent life for an average Polish citizen in the period of the old age?

APPROACH/METHODOLOGY/DESIGN: The unfavorable demographic situation in Poland causes that we should look with bigger and bigger fear at Polish pension system efficiency. Considering these demographic processes, at the same time we can unambiguously state that the level of a retirement pension will decrease for the significant part of the Polish in the perspective of the coming several dozens of years. Currently the replacement rate, that is the rate of the last pre-retirement earnings to the first retirement pension, equals about 50%. In coming years, it is predicted that the rate will drop to about 20-30%. Due to the decreasing level of benefits from the basic part of the pension system, saving in the supplementary system part, initiated by the employer or a future pensioner, is an effective way to ensure a higher living standard after retirement. Research methodology is the elaboration of a simulation and forecasts of the future level of benefits from PPK, PPE, IKE and IKZE applying the quantitative methods.

FINDINGS: This paper presents the basic elements of the demographic situation in Poland as one of the major reasons of the pension system ineffectiveness, besides the analysis of pillar 3 products that is, the Employee Capital Plans (PPK), Employee Pension Schemes (PPE), Individual Retirement Account (IKE), Individual Retirement Protection Account (IKZE).

PRACTICAL IMPLICATIONS: The presentation of forecasted effectiveness of pillar 3 pension products for decision making. The improvement of Polish society awareness of pillar 3 and its influence on the future pension benefits level.