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DISCUSSION PAPER PI-0910

Barriers to Increased Effectiveness of Investment by Pension Funds in Poland

Filip Chybalski

The last ten years of the 20th century was the decade of pension reforms
in Central and Eastern European countries. A three-pillar pension system has
been adopted in most of that countries, including Poland, where the second
pillar is created by open pension funds (OFEs), managed by pension fund
companies (PTEs). The aim of this article is to identify and analyze barriers to
the increased effectiveness of investment by pension funds in Poland. The
most significant of these barriers include the system of remuneration for
pension fund companies, the minimum required rate of return mechanism,
the excessively restrictive investment limits, and the lack of rational choice
of pension funds by Poles. The conclusion is reached that the system of
remuneration for pension fund companies should be linked to a greater extent
to the funds’ results, which has been achieved in some countries of Central
and Eastern Europe, but not in Poland. The current financial crisis has also
brought to light the need to make other changes in the second pillar of the
pensions system, including liberalization of investment limits for pension funds,
particularly in relation to foreign investments, and the introduction of subfunds.
It is also necessary to educate society in matters relating to capital-based
pensions, since otherwise there is a lack of understanding of the rules according
to which pension funds function and of the types of risks associated with this.
Moreover, people are insufficiently aware of their shared responsibility for their
future pension benefits. The actions listed above would on one hand stimulate
competition between the open pension funds in their investment activity, and on
the other hand provide protection for the accumulated capital, particularly in a
period of financial crisis.