Poles retirement pension could be higher by PLN 3 thousand per year

7 Aug 2018 16:32|Marcin Lipka

“Poland has the highest percentage of pensioners with special rights in the European Union. Maintaining this costs about PLN 50 billion annually, which is 2.6% of GDP. If expenditure on special pensions was limited to 1% of GDP, i.e. it was equal to the EU standards, every pensioner in Poland could receive PLN 3,000 more on an annual basis,” writes Marcin Lipka, Conotoxia Senior Analyst.

The European Commission's study 'The 2018 Ageing Report' leaves no doubt. The demographic situation will deteriorate dramatically in the coming decades. In Poland, the public spending on ageing will have the highest increase in the Union.

Negative demographic trends will also have a strong impact on the average retirement benefit, which in 2040 will amount to only 27.6% of the last salary, while in 2016 it was 61.4%. “The 2018 Ageing Report” magnified the retirement benefits of privileged groups of citizens. In this ranking, Poland is only competing against Greece for being the first one.

Privileged Eldorado

Favourably counted period of contributions, higher replacement rate, preferential indexation rates, lower than the statutory retirement age or state subsidies to separate pension plans. According to data from the European Commission, these privileges are practically non-existent in Sweden. However, they are observed to a very limited extent in the Czech Republic, Ireland, Germany or Slovakia. Spending by these countries on better-than-average treatment of some pensioners does not exceed 0.5% of GDP per year.

At the other end of the spectrum are Poland and Greece. In these countries, the cost of maintaining privileged pension systems is the highest, at 2.6% and 2.7% of GDP respectively. In the case of our country, this amounts to about PLN 50 billion annually in additional expenditure on public money, and more than 22% of beneficiaries (the highest number in the EU) benefit from more favourable than standard benefits.

Who benefits from the preferences?

According to the report of the European Commission, three basic groups in the European Union use such benefits. These include those who work in dangerous conditions, the security and defence forces and, for example, farmers.

The EC does not have complete data on expenditure in individual categories, but in the first two categories Poland's expenditure is definitely dominant (dangerous conditions and the security and defence forces). The costs of preferential treatment of these social groups amount to 1.7% of GDP (approximately PLN 32 billion annually). However, the remaining burden is primarily the result of preferential treatment of farmers.

It is also worth noting that the trend in the reduction of extraordinary pension benefits is predominant in the Union. Although it seems logical to leave them for some professions (e.g. firemen), technological progress is conducive to limit them. In Poland, on the other hand, this trend is not visible, which, together with the additional burden associated with age, will constitute an even greater burden on public finances.

And who pays for all this?

It makes no sense to abolish pension rights altogether. However, looking at the data in the EU, the preferential treatment of certain social groups should not cost more than 1% of GDP, i.e. in the case of Poland about PLN 20 billion.

As a result, the remaining PLN 30 billion is an additional and unjustifiable cost to citizens each year. These are mainly current pensioners, whose benefits are mostly low. If we divide PLN 30 billion into less than 10 million people, who in Poland receive pensions from the state, each of them would receive on average more than PLN 3 thousand a year.

 


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