It sure seemed that way. First Argentina helped itself to the money in workers’ individual Second Pillar retirement accounts, then Hungary. I was all set to write a post on Poland as the third to befall this fate, but I didn’t quite understand what had happened there, until the Economist clarified their actions in this Saturday’s edition, helpfully available online and outside the paywall.
In short, Poland has a system of individual retirement “accounts,” portions of which are notional (a hypothetical account balance is recorded but no actual money is being invested) and portions of which are real. They’ve tinkered around with the portion of the total Social Security contribution which a participant may invest in the real account, reducing it substantially recently with the promise to permit more money going into the funded accounts in the future.
According to the Economist, within these individual accounts, the portion of the money that individuals had allocated to government bonds (and I’m not sure if there were asset allocation requirements, or if individuals voluntarily chose to invest in government bonds) has been swallowed up by the government, with the account value being shifted over to the notional, unfunded account. The point of this maneuver is to reduce the official debt-to-GDP ratio, since pension liabilities aren’t factored in. The government’s promise is that the affected individuals’ pension accruals won’t be affected, which is, strictly speaking, true, on paper, now at least — the bigger issue with these types of “notional account” plans is how the hypothetical interest is credited, and how they’re converted to annuities at retirement.
These plans — a mix of notional accounts and real, funded individual accounts — are becoming increasingly popular, but they entail a shift from unfunded pay-as-you-go to funded pensions that is difficult for a country to sustain. The more you shift money to a funded system, the less there is to pay existing Social Security benefits; effectively, it would be the same as if we reduced the FICA tax in a swap to move some of the former contributions to be shifted to IRAs, but had the same Social Security obligations for existing pensioners as before. The money’s got to come from somewhere.
The other interesting take-away from this is nothing to do with governments getting their rapacious hands on people’s hard-earned money, as with the extent to which Social Security “savings” is real. Effectively, they’ve traded government bonds for something like our Social Security “Trust Fund” which, as its defenders point out, earns interest every year. But is it real money, that Social Security recipients have a real claim to? Hardly.
UPDATE: I checked some reference materials and participants were restricted to something on the order of 40% of investments being allocated to equities. As there doesn’t seem to be much of a local corporate bond market, this was effectively a pre-existing requirement that Poles invest in government bonds.
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