British In Poland

I know I know, it’s a boring topic pensions, but presuming I live long enough to reach retirement age I would like to know I won’t be sitting in a squat eating a tin of beans with a blanket to keep me warm because I can’t afford the gas bill…

So if like me you want to get your finances in order and want to contribute to your pension pot now for the years ahead, here is an intro to the basic pension system in Poland.

The Old Polish Pension System

In 1999 some boffins in an office in Warsaw realised that their existing pension system was serverely flawed.  They were using the system whereby today’s generation of workers’ pension contributions pay for the elder generation who are claiming their retirement now.  This is fine when there are more workers than retirees, but as the proportion of retirees grows relative to the number of workers (as is the case in all modern countries where birth and immigration rates aren’t high enough) then there’s a financial timebomb in the making.

1999 Pension Reform

Looking around for inspiration, Poland decided to base its new pension system on that used by Chile.  Wierd but true (honestly I didn’t make that up).  This system is split 3 ways, and using Polish terminology they are called the first, second and third pillars (“filar”).  This system came in to effect in 1999 but there are different rules for persons born before and after 31st December 1968.  Here I will describe the rules for those born after 1968.

First Pillar – Closed Fund

If you have spent any time working in Poland you probably know that ZUS is Poland’s social security office (Zakład Ubezpieczeń Społecznych – company for social securities).  Contributions from your salary are paid to ZUS each month by your employer (or you if you are self-employed, or by the dole-office if you are claiming unemployment).  The first pillar is the bit where a part of these contributions is invested by ZUS as they see fit.  You have no control over where ZUS invests this money.  The idea of this is to allow the government to keep some control on what’s happening with people’s pensions.  This pillar is usually called “filar 1″ or referred to as the closed fund.

Second Pillar – Open Fund

The rest of your monthly ZUS pension contributions are used for the second pillar.  This is the chunk where you can decide where this contributions should be invested – but they are still managed by and paid by ZUS so you can’t control how much is paid in.  If you start work in Poland then you are legally REQUIRED to choose a pension fund within 7 days.  This requirement is a surprise to most people (and was to me) – I had no idea about this and have never heard about anyone getting in to trouble over it.  The reality is that if you don’t make a choice (and I guess this affects a lot of people) then ZUS will randomly choose a pension fund to invest your contribution funds into on a lottery style basis (see below).

In Polish different terms are used for this pillar: fundusz emerytalny, otwarty fundusz emerytalny, OFE, drugi filar, filar 2.

Third Pillar – Voluntary Fund

This is the part that’s totally down to you to invest something for yourself.  It’s totally optional but recommended if you don’t want to be relying on ZUS when you’re older.  This area covers all other methods of tucking something away for retirement age.

The Open Fund Lottery

As mentioned ZUS uses a lottery style selection process to choose a pension fund for those people that didn’t specify one.  They make a list of available funds on the market, remove the biggest 3 (to avoid the biggest ones getting too big and stifling market competition), then randomly select one of the remainders.  This draw takes place twice a year on the last working days of February and July.

Clearly it’s bad to get “lotteried” because often the big 3 pension funds are the best performers, and you aren’t going to be with them.

Summons from ZUS to choose an open pension fund

Sometimes your ZUS office will send you a letter to tell you that you didn’t choose an open pension fund with the title “wezwanie do zawarcia umowy z otwartym funduszem emerytalnym“.  This just means that you didn’t choose a fund and are working or have worked in the past.  You should go and choose a fund otherwise they will put you in their lottery.

Choosing an Open Pension Fund

If you have been working for more than 7 days and did nothing about your pilar 2 fund then you may well have become “wylosowany” (lotteried).  You should go to your ZUS office to check.

Otherwise have a look on google.pl for “fundusz emerytalny”.  The three biggest names are PZU, Aviva Commercial Union and ING.

Changing your Open Pension Fund

You can change your fund free of charge after 2 years.  If you want to change it sooner than that you can do so but there is a fee of up to 160 zloty.

How to Apply for an Open Pension Fund

You just need to fill out a form with your chosen pension fund provider.  You need to supply your name, date of birth, NIP number, PESEL number and a document to prove your identity such as your passport.  Your pension fund company will sort the rest out.  The agreement needs to be approved by ZUS so it can take up to 30 days to sort out.