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Polish Pension Funds, Does The System Work? Cost, Efficiency and Performance MeasurementIssues

Author

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  • Dariusz Stanko

    (Osaka University, Warsaw School of Economics)

Abstract

This paper is a part of the author's wider research on the current Polish pension fund system. It deals with the system fs efficiency from the point of view of the individual fund member. After over three years of functioning, the savings accumulated with the pension funds only slightly exceed the total premiums that have so far been paid. The study shows that the system is not cost effective and that the incentives produced by the fees and the peer-based performance measurement frameworks have a detrimental impact on active investment management. The low net results from the second pillar are also caused partly by the relatively low share of the funded component of the retirement premium. It is shown that considerable cost improvements can be obtained by immediate corrections. However, more fundamental changes in the system are suggested. In particular, the fee structure should be rearranged to create better motivation for active management. To achieve this, the penalty institution of minimal required rate of return should be abandoned. Furthermore, the investment limits should be reconsidered to allow for greater diversification and higher long-run risk to overcome the capacity problem of the local stock market. This study shows that the evaluation of funds should employ an external index to avoid herding and to allow a long-run investment strategy for retirement purposes. Several possible candidates for benchmarks are proposed.

Suggested Citation

  • Dariusz Stanko, 2003. "Polish Pension Funds, Does The System Work? Cost, Efficiency and Performance MeasurementIssues," Public Economics 0302001, EconWPA.
  • Handle: RePEc:wpa:wuwppe:0302001
    Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on Epson; pages: 51 ; figures: included. pdf file, 51 pages
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    File URL: http://econwpa.repec.org/eps/pe/papers/0302/0302001.pdf
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    Cited by:

    1. Matarr Njie, 2006. "The Efficiency of the Retirement Income System in Australia During Financial Reforms," NFI Working Papers 2006-WP-08, Indiana State University, Scott College of Business, Networks Financial Institute.
    2. Martin T. Bohl & Judith Lischewski & Svitlana Voronkova, 2011. "Pension Funds' Performance in Strongly Regulated Industries in Central Europe: Evidence from Poland and Hungary," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(0), pages 80-94, July.
    3. Martin T. Bohl, Judith Lischewski and Svitlana Voronkova, 2008. "Does Regulation Hurt Pension Funds' Performance? Evidence from Strongly Regulated Pension Fund Industries," The Institute for International Integration Studies Discussion Paper Series iiisdp247, IIIS.
    4. Martin T. Bohl & Judith Lischewski & Svitlana Voronkova, 2011. "Pension Funds' Performance in Strongly Regulated Industries in Central Europe: Evidence from Poland and Hungary," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(0), pages 80-94, July.
    5. Michal SlavĂ­k, 2006. "The Czech Pension System and the Perspectives of Its Reform," Prague Economic Papers, University of Economics, Prague, vol. 2006(3), pages 214-230.

    More about this item

    Keywords

    Pension reform; public pensions; pension funds; government regulation;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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