In Poland, we may face the biggest dilemma of recent decades: what to do with the pension system. The replacement rate is very low, which does not bode well – we are all hungry. What is the solution for this?
Replacement rate
The replacement rate of the pension is an indicator that determines how much part of the last net salary the first retirement benefit is and allows the assessment of whether the standard of living after retiring is comparable to the period of professional activity.
And at the start I have terrible information: OECD forecasts assume that people currently entering the labor market can count on a net retirement of about 40% of the last salary for men and 32% for women, assuming medium earnings and a standard career path. For comparison – the average OECD is about 61%, so Poland remains much below this level.
As if that was not enough, in 2050 it will be worse: the foot in Poland is to drop to about 29% for men and only 23% for women.
Why is the indicator so low? After the 1999 reform, the Polish system moved from the defined benefit system (DB) to the defined contribution system (DC), where the pension depends on the sum of contributions – and not the guaranteed level of benefit – which results in lower pensions. As a result, today women in Poland receive much lower pensions than men – their replacement rate is about 7-8 percentage points lower (already mentioned 32% vs. 40% for men).
In addition, according to the 2018 survey: 47% of pensioners with an indicator of ~ 67% of income from before the pension believe that their financial situation deteriorated after retiring; 40% of people with a decline of 1/3 of income indicated this change as unacceptable. In addition, 60% of these people needed additional partner’s income, just to function.
All this makes up the fatal picture of the current realities. And it will be worse: Poland is one of the fastest aging societies in Europe.
Maintaining the replacement rate at the current level of 40% (for men) would require increasing retirement expenditure by ~ 4-6.5% of GDP per year to the mid -21st century.
What are the authorities doing so far?
The rulers respond to these problems in a rather … coarse way. The previous government paid. 13. Retirement. Then the 14th pension came to this. The current office of KO, Lewica, Poland 2050 and PSL introduced grandmothers+ – a program according to which carers of children aged 1 to 3 years old can apply for a payment of PLN 1,500. The name came from the fact that a grandmother could be such a guardian.
In the long run, however, this will not help much and it will be necessary to increase retirement age or focus on mass migration – bringing even millions of people from other regions of the world to Poland that will save our pension system.
Take care of yourself!
The truth is, however, that the rulers do not have a particularly convincing way to the problem of the replacement rate. Therefore, the best solution is to save yourself in old age and invest your funds.
Of course, this is a solution for people who know how financial markets work. On the other hand, it is often enough to conscientiousness and perseverance. An example would be a bitfilar. As part of the project, its creator regularly invests savings in cryptocurrencies. In his portfolio there are: bitcoins, dogcoins, litecoins, Dash, Ethery and Tethery. He invested PLN 33770 from his funds. The current value of your cryptocurrencies is … PLN 2 009 256! The investment time is 122 months. The total return rate is 5849.83 %and the annual 575.39 %. This shows that regular saving in cryptocurrencies allows you to retire with a dignified retirement within 10 years.
Summary
Poland has one of the lowest feet of retirement replacement today. In addition, there are prospects for further decline in the following decades. Women are particularly threatened with this phenomenon, due to lower benefits and earlier retirement age. Only deeper reforms – including Increasing retirement age – they can improve this situation.
However, every future pensioner should assume that the state will not cope with this challenge and save and invest alone. This seems to be the only way to a dignified life in old age today.
