The Impact of Pension Reforms on Public Finance in Poland

The aim of this article is to analyze the impact of pension reforms in Poland on the General Government deficit and debt. This issue is important from the point of view of demographic changes, and the pace of economic development, as well as the current and future state of public finances. These factors are crucial to the security of the pension system and the quality of life of future pensioners. On 19th June 2015, the Ecofin Council decided to retract applying the Excessive Deficit Procedure to Poland. As a result of the Excessive Deficit Procedure being imposed upon it, Poland took steps to reduce its deficit through structural reforms-extending the retirement age to 67 years of age and making the retirement age the same for men and women, and reforming the open pension funds (OFE). However, when assessing the effects of the recent pension reform of 2014, it is worth mentioning the previous reforms. The first pension reform, in place since 1999 has proven to be a serious burden to the state budget due to the high costs of the funded pension scheme (OFE), contributing to an increase in public debt. Therefore, in 2011, the government proposed further changes in the pension system, which turned out to be insufficient to improve the state of public finances. Analyzing the next OFE reform of 2014 it is worth noting that OFE transferred to the Social Insurance Institution (ZUS) assets with a market value of PLN 153.2 billion. This operation transformed Poland's visible public debt into the state's future liabilities towards its pensioners (so called hidden debt).