Poland:
The impact of social security reforms on employee benefits planning
Implementation of Poland’s pension reform has been delayed until April 1999. While waiting for the starting gun, Watson Wyatt carried out a survey among multinational companies, to assess the impact on planning for employee benefits of both the new pension rules and the developing issue of healthcare. The reforms and the survey responses are summarised below.
Pension provision currently rests on the obligatory pay-as-you-go system financed by a 45% employer contribution on total earnings and voluntary contributions to private funds (the first and third pillars). The reforms will insert a second pillar of mandatory employee contributions to private funds of the individual’s choice. On inception, the new second pillar will automatically include all employees below 30. Those aged between 31 and 50 can choose between pensions from the first pillar alone or from the first and second pillars combined. The over 50s are unaffected by the changes.
Under the reforms, the aggregate contribution remains the same, but the employer contribution will reduce to 36% on an earnings ceiling of 2.5 times national average pay (instead of on all pay as at present). It will become mandatory for the remaining 9% to be paid out of the employee’s income to their chosen private fund. To soften what would otherwise amount to a cut in pay, employers will be required to gross up the 9%, so that after tax the employee is no worse off. The cost of this to the employer will depend on the marginal tax rate of the employee.
The survey sought to elicit whether participants considered the changes would result in savings on payroll costs and how any savings would be used. Only a very few had calculated the financial implications, but all expected net savings, of on average 10.8% of payroll. However, many supplied data from which calculations could be made, using general assumptions about the distribution of pay around an average. On that basis, it appeared that 97% of participating companies would save money - an overall average of 10.64% of payroll. In a few cases, the estimated net benefit is more than 14%.
Nearly two thirds of the participating companies stated they will use the savings to improve employment conditions or benefits, and of those, about the same proportion intend to put additional money into their employees’ chosen pension funds if possible. Some 29% indicated they may create their own supplementary plan or pension promise, although few were contemplating this a year ago. Over 50% are considering introducing or improving other forms of benefit in addition. Medical cover for employees is the most popular choice, with death and disability benefits not far behind.
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