– When announcing the costs of the planned change in valorization, the government focused on costs for next year. For this reason, Employers of Poland have made their own estimations, taking into account long-term consequences of introducing new solutions – says Łukasz Kozłowski, expert of Employers of Poland.
Introducing further changes in valorization of pensions in Sejm in late August, then-PM Tusk admitted that they would cause an increase in budget expenses for next year. As was later specified by Minister of Labour and Social Policy, increased pension benefits in 2015 will cost 3.6 bln PLN. 1.7 of which will be additional expenses resulting from the new valorization mechanism. This number, although high, should not be an obstacle in leaving the excessive deficit procedure imposed in 2009. However, the costs of amount-percentage valorization – even if it will only be used once – will have their consequences in subsequent years as well. Increased benefits will have to be paid for the rest of the lives of pensioners, who will be subject to valorization in 2015.
Our estimations show that a one-time change in valorizations rule next year, an additional 1.7 bln PLN and 1.6 bln will have to be included in the budget for 2016 and 2017 respectively. In the coming years these values will decrease, but by 2050 it will still amount to 20 bln PLN. Even if the costs will not be an excessive burden for next year’s budget, they might be one of the causes of problems with the stability of Polish public finances in more trying times.
Increasing pensions based not only on regulations ensuring the protection of their purchasing power, but also on increasing this power is risky. It causes a threat of further financial unbalancing of the social security system, which is now dependent on donations from the budget to a significant degree anyway. This will result in increasing difficulties in finding sufficient funds for benefits. We are faced with a very difficult choice. The motivations behind introducing a valorization mechanism more favorable for less wealthy beneficiaries are understandable. However, an excessive increase in pensions might cause a shortage in funds for those who will retire in a few years time. The more often a valorization method which contradicts the basics of the new pension system – a system based on a defined contribution and not on benefit – is applied, the bigger the problems will be.
The estimation is not perfectly accurate – due to restricting access to certain data, some simplifications were made. However, it shows that most costs of the pension valorization – even if it only occurs once – will be a burden not for next year, but for the years afterwards. The government should consider the long-term effects of such changes when making a decision.
Łukasz Kozłowski, expert of Employers of Poland