Poland announced earlier this month a complete overhaul of its private pension industry, and markets subsequently fell to 5-month lows.
Now, officials are trying to quell investors’ fears about the overhaul as they move forward.
Investors worry that the cash-strapped government will find meddling too tempting to resist. In the last overhaul, the government canceled the government bonds held by the pension funds — 51 percent of their assets at the time — to cut its debt load. Since the end of 2013, Warsaw’s main stock index has plummeted 43 percent in dollar terms, while emerging stocks dropped 13 percent.
The other risk this time is that all the portfolio shifts the plan envisions will swamp the Warsaw Stock market, where daily volume averages about 700 million zloty.
“We’re relieved that nationalizing the fund’s Warsaw stock assets isn’t being considered, but this proposal doesn’t eliminate all risks,” said Ryszard Rusak, a money manager at Union Investment TFI mutual fund in Warsaw. “Without proper regulations, the bourse may be overrun by supply as funds managing individual retirement accounts diversify away from stocks.”
The new plan, for which legislation hasn’t yet been drafted, calls for taking a quarter of current pension fund assets for the government. Those assets — foreign stocks, local corporate debt as well as bank deposits — will be transferred to the FRD, the government’s rainy-day fund. The remaining 75 percent — mainly the pension funds’ holdings of local stocks — will go into the individual accounts, to be managed by private investment companies.