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The distributional effects of the pension system reform in Poland

Elena Jarocinska
Elena Jarocinska
 oraz 
Anna Ruzik-Sierdzińska
Anna Ruzik-Sierdzińska
   | 03 sie 2023
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Data publikacji: 03 sie 2023
Zakres stron: -
Przyjęty: 26 paź 2022
DOI: https://doi.org/10.2478/izajolp-2023-0002
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© 2023 Elena Jarocinska et al., published by Sciendo
This work is licensed under the Creative Commons Attribution 4.0 International License.

Figure 1

The predicted age-earnings profiles for men aged 18–64 years by education level, in euros.Notes: Earnings are net monthly earnings in EUR 2012. Own calculations based on PHBS, 2012. Three groups of education levels include the following groups from Table 2: Group 1: Incomplete primary, primary, and gymnasium; Group 2: Basic vocational, upper secondary general, upper secondary vocational, and postsecondary non-tertiary; Group 3: Tertiary. PHBS, Polish Household Budget Survey.
The predicted age-earnings profiles for men aged 18–64 years by education level, in euros.Notes: Earnings are net monthly earnings in EUR 2012. Own calculations based on PHBS, 2012. Three groups of education levels include the following groups from Table 2: Group 1: Incomplete primary, primary, and gymnasium; Group 2: Basic vocational, upper secondary general, upper secondary vocational, and postsecondary non-tertiary; Group 3: Tertiary. PHBS, Polish Household Budget Survey.

Figure 2

Distributions of predicted monthly pension benefits at the age of 65 years, baseline scenario (post-reform) and counterfactual (no-reform) scenario, in euro.Note: Exchange rate 2012: 1 EURO = 4.185 PLN.
Distributions of predicted monthly pension benefits at the age of 65 years, baseline scenario (post-reform) and counterfactual (no-reform) scenario, in euro.Note: Exchange rate 2012: 1 EURO = 4.185 PLN.

Figure 3

Projected changes in p90/p50 and p90/p10 percentile ratios in the old and the new pension systems for men born in years 1969–1979.
Projected changes in p90/p50 and p90/p10 percentile ratios in the old and the new pension systems for men born in years 1969–1979.

Gini index of pension benefits, first pension benefits p90/p10 ratio, and average RRs for selected cohorts

Scenario Cohorts
1969 1974 1979
Gini index of pension benefits
Baseline – 65 years, new system 0.219 0.239 0.267
Counterfactual – 65 years, old system 0.178 0.182 0.187
Higher LE 0.219 0.239 0.267
Higher rate of return 0.216 0.236 0.264
First pension benefits p90/p10 ratio
Baseline – 65 years, new system 2.72 3.03 3.27
Counterfactual – 65 years, old system 2.21 2.28 2.21
Higher LE 2.72 3.03 3.27
Higher rate of return 2.70 2.94 3.27
Average RRs (%)
Baseline – 65 years, new system 42 38 35
Counterfactual – 65 years, old system 80 81 78
Higher LE 40 36 33
Higher rate of return 48 44 42

Assumptions for sensitivity analysis – various scenarios

Baseline: new system Counterfactual: old system New system, with higher (H) minimum pension New system, with lower (L) minimum pension New system, higher retirement age New system, higher LE New system, higher rate of return New system, same employment rates for all education groups Earnings not falling
Employment rates (%) Higher education – 92.9, secondary education – 79.1, primary education and lower – 53.1 92.9 for all
Retirement age (years) 65 67 65
LE at retirement (in months) at the year of retirement From 252 to 271 - From 252 to 271 From 236 to 254 LE from the baseline scenario + 12 months (from 264 months to 283 months) From 252 to 271
Rate of return since 2018 (%) 2 - 2 3
Wage profiles Age-wage profiles rising until the age of maximum wage and then falling Age-wage profiles constant since the age of maximum wage

RRs for first pension benefits received at the age of 65 years

Year of birth N p90/p10 p90/p50 p10/p50 Average (%) p90/p10 p90/p50 p10/p50 Average (%)
New pension system (baseline) Old pension system (counterfactual)
1969 378 1.33 1.14 0.85 42 1.56 1.26 0.81 80
1970 360 1.33 1.13 0.85 42 1.62 1.33 0.82 82
1971 390 1.30 1.13 0.87 40 1.57 1.30 0.83 80
1972 388 1.30 1.13 0.87 39 1.57 1.31 0.83 78
1973 394 1.28 1.13 0.88 38 1.58 1.32 0.83 80
1974 406 1.27 1.12 0.88 38 1.60 1.32 0.82 81
1975 417 1.24 1.13 0.91 37 1.56 1.28 0.82 80
1976 445 1.21 1.12 0.93 36 1.58 1.32 0.84 80
1977 412 1.22 1.11 0.91 36 1.55 1.27 0.82 79
1978 456 1.15 1.08 0.94 35 1.57 1.30 0.83 78
1979 472 1.14 1.08 0.95 35 1.51 1.28 0.85 78

Impact of the minimum pension benefit on inequality of pension benefits and RRs

Scenario Cohorts
1969 1974 1979
Gini index of pension benefits
Baseline – 65 years, new system 0.219 0.239 0.267
Counterfactual – 65 years, old system* 0.178 0.182 0.187
New 65 years + min pension H 0.167 0.158 0.179
New 65 years + min pension L 0.199 0.210 0.241
First pension benefits p90/p10 ratio
Baseline – 65 years, new system 2.72 3.03 3.27
Counterfactual – 65 years, old system 2.21 2.28 2.21
New 65 years + min pension H 1.99 1.89 1.97
New 65 years + min pension L 2.45 2.51 2.84
Average RRs (%)
Baseline – 65 years, new system 42 38 35
Counterfactual – 65 years, old system 80 81 78
New 65 years + min pension H 48 47 44
New 65 years + min pension L 45 41 38

Distribution of net monthly pension benefits at the age of 65 years in euro, 2034–2044

Year of birth N p90/p10 p90/p50 p10/p50 Gini p90/p10 p90/p50 p10/p50 Gini
New pension system (baseline) Old pension system (counterfactual)
1969 378 2.72 1.69 0.62 0.219 2.21 1.61 0.73 0.178
1970 360 2.85 1.71 0.60 0.220 2.16 1.56 0.72 0.172
1971 390 2.80 1.71 0.61 0.227 2.24 1.60 0.71 0.182
1972 388 2.88 1.73 0.60 0.228 2.27 1.61 0.71 0.180
1973 394 2.82 1.79 0.64 0.236 2.21 1.65 0.75 0.185
1974 406 2.98 1.79 0.60 0.239 2.28 1.65 0.73 0.182
1975 417 3.03 1.90 0.63 0.248 2.28 1.68 0.74 0.187
1976 445 3.24 1.88 0.58 0.250 2.26 1.60 0.71 0.185
1977 412 3.27 2.04 0.62 0.259 2.35 1.74 0.74 0.186
1978 456 3.56 1.94 0.54 0.264 2.36 1.65 0.70 0.188
1979 472 3.27 1.81 0.55 0.267 2.21 1.55 0.70 0.187

Sample descriptive statistics

Variable Sample 1 Sample 2
Mean Minimum Maximum Mean Minimum Maximum
Dependent variable
Log monthly earnings 7.54 5.70 8.70 7.66 5.70 8.70
Characteristics of individuals
Tenure 20.60 0 65 17.73 8 28
Educational attainment (%)
  Incomplete primary, primary and gymnasium 7.30 5.57
  Basic vocational 39.71 40.83
  Upper secondary general 7.24 5.90
  Upper secondary vocational 24.82 24.12
  Postsecondary non-tertiary 1.48 1.37
  Tertiary 19.44 22.22
Occupation (%)
  Public servants and managers 4.22 5.18
  Scientists and researchers 10.73 12.78
  IT and technical personnel 8.34 9.29
  Administration 5.29 5.09
  Service workers 8.59 7.48
  Manual workers and workers in construction 31.73 31.32
  Other types of manual workers 21.29 22.23
  Elementary occupations 9.10 6.64
Industry
  Mining 3.33 4.05
  Manufacturing 29.14 30.46
  Electric, gas and sanitary service 3.61 2.92
  Construction 18.19 17.16
  Trade 11.76 12.59
  Transportation, communications, information 13.41 13.32
  Finance, insurance, and real estate 2.37 2.39
  Services 6.22 4.14
  Public administration, education, and health 11.98 12.98
Sample size, observations 15,940 4,518

Main features of Poland's mandatory pension system before and after the 1999 reform

Pre-reform Post-reform
Type of system Pay-as-you-go defined benefit Pay-as-you-go, NDC plan (first pillar) + FDC plan (second pillar)*
Benefit formula Flat rate plus a component based on earnings and tenure Depends on contributions paid on lifetime earnings and LE at the retirement age
Transition from old to new system Cohorts born before 1949 – covered by the old systemCohorts born between 1949 and 1968 could choose to participate only in NDC or in both NDC and FDC pillarsCohorts born after 1969 fully covered by the new system

Impact of higher retirement age and no difference in employment rate on pension benefits and RRs

Scenario Cohorts
1969 1974 1979
Gini index of pension benefits
Baseline – 65 years, new system 0.219 0.239 0.267
Counterfactual – 65 years, old system 0.178 0.182 0.187
Higher retirement age (67 years) 0.221 0.241 0.268
No difference in employment rate 0.203 0.220 0.240
First pension benefits p90/p10 ratio
Baseline – 65 years, new system 2.72 3.03 3.27
Counterfactual – 65 years, old system 2.21 2.28 2.21
Higher retirement age (67 years) 2.76 3.01 3.28
No difference in employment rate 2.58 2.84 2.95
Average RRs (%)
Baseline – 65 years, new system 42 38 35
Counterfactual – 65 years, old system 80 81 78
Higher retirement age (67 years) 49 44 41
No difference in employment rate 47 43 40
eISSN:
2193-9004
Język:
Angielski
Częstotliwość wydawania:
Volume Open
Dziedziny czasopisma:
Business and Economics, Political Economics, Microeconomics, Macroecomics, Economic Policy, Mathematics and Statistics for Economists, Econometrics
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