{"id":829,"date":"2013-09-23T08:26:00","date_gmt":"2013-09-23T14:26:00","guid":{"rendered":"http:\/\/admin.patheos.com\/blogs\/janetheactuary\/2013\/09\/is-poland-the-latest-casualty-of-the-nationalization-of-private-pension-accounts.html"},"modified":"2016-08-16T09:52:11","modified_gmt":"2016-08-16T15:52:11","slug":"is-poland-the-latest-casualty-of-the-nationalization-of-private-pension-accounts","status":"publish","type":"post","link":"https:\/\/www.patheos.com\/blogs\/janetheactuary\/2013\/09\/is-poland-the-latest-casualty-of-the-nationalization-of-private-pension-accounts.html","title":{"rendered":"Is Poland the latest casualty of the nationalization of private pension accounts?"},"content":{"rendered":"\n<\/head>

It sure seemed that way.\u00a0 First Argentina helped itself to the money in workers\u2019 individual Second Pillar retirement accounts, then Hungary.\u00a0 I was all set to write a post on Poland as the third to befall this fate, but I didn\u2019t quite understand what had happened there, until the Economist clarified their actions in this Saturday\u2019s edition, helpfully available online and outside the paywall<\/a>. <\/p>\n

In short, Poland has a system of individual\u00a0retirement \u201caccounts,\u201d portions of which are notional (a hypothetical account balance is recorded but no actual money is being invested) and portions of which are real.\u00a0 They\u2019ve 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.\u00a0 <\/p>\n

According to the Economist, within these individual accounts, the portion of the money that individuals had allocated to government bonds (and I\u2019m 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.\u00a0 The point of this maneuver is to reduce the official debt-to-GDP ratio, since pension liabilities aren\u2019t factored in.\u00a0 The government\u2019s promise is that the affected individuals\u2019 pension accruals won\u2019t be affected, which is, strictly speaking, true,\u00a0on paper, now at\u00a0least\u00a0\u2014 the bigger issue with these types of \u201cnotional account\u201d plans is how the hypothetical interest is credited, and how they\u2019re converted to annuities at retirement.<\/p>\n

These plans \u2014 a mix of notional accounts and real, funded individual accounts \u2014 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.\u00a0 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.\u00a0 The money\u2019s got to come from somewhere.\u00a0 <\/p>\n

The other interesting take-away from this is nothing to do with governments getting their rapacious hands on people\u2019s hard-earned money, as with the extent to which Social Security \u201csavings\u201d is real.\u00a0 Effectively, they\u2019ve traded government bonds for something like our Social Security \u201cTrust Fund\u201d which, as its defenders point out, earns interest every year.\u00a0 But is it real money, that Social Security recipients have a real claim to?\u00a0 Hardly. <\/p>\n

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\u2019t seem to be much of a local corporate bond market, this was effectively a pre-existing requirement that Poles invest in government bonds.<\/p>\n<\/body><\/html>\n","protected":false},"excerpt":{"rendered":"

It sure seemed that way.\u00a0 First Argentina helped itself to the money in workers\u2019 individual Second Pillar retirement accounts, then Hungary.\u00a0 I was all set to write a post on Poland as the third to befall this fate, but I didn\u2019t quite understand what had happened there, until the Economist clarified their actions in this […]<\/p>\n","protected":false},"author":2209,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[450],"tags":[],"class_list":["post-829","post","type-post","status-publish","format-standard","hentry","category-actuarial"],"yoast_head":"\nIs Poland the latest casualty of the nationalization of private pension accounts?<\/title>\n<meta name=\"description\" content=\"It sure seemed that way.  First Argentina helped itself to the money in workers' individual Second Pillar retirement accounts, then Hungary.  I\" \/>\n<meta name=\"robots\" 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