* Reform moves bond assets from private to state fund
* Some equity assets to gradually move to state as well
* Changes seen reducing Polish public debt by 8 pct of GDP
* Funds say moves could be unconstitutional
* Warnings that private pension funds could be wiped out
By Dagmara Leszkowicz and Chris Borowski
WARSAW, Sept 4 Poland said on Wednesday it will
transfer to the state many of the assets held by private pension
funds, slashing public debt but putting in doubt the future of
the multi-billion-euro funds, many of them foreign-owned.
The changes went deeper than many in the market expected and
could fuel investor concerns that the government is ditching
some business-friendly policies to try to improve its flagging
popularity with voters.
The Polish pension funds' organisation said the changes may
be unconstitutional because the government is taking private
assets away from them without offering any compensation.
Announcing the long-awaited overhaul of state-guaranteed
pensions, Prime Minister Donald Tusk said private funds within
the state-guaranteed system would have their bond holdings
transferred to a state pension vehicle, but keep their equity
He said that what remained in citizens' pension pots in the
private funds will be gradually transferred into the state
vehicle over the last 10 years before savers hit retirement age.
The reform is "a decimation of the ...(private pension fund)
system to open up fiscal space for an easier life now for the
government," said Peter Attard Montalto of Nomura. "The
government has an odd definition of private property given it
claims this is not nationalisation."
Tusk said people joining the pension system in the future
would not be obliged to pay into the private part of the system.
Depending on the finer points, this could mean still fewer
assets in the private funds.
"The (current) system has turned out to be built in part on
rising public debt and turned out to be a very costly system,"
Tusk told a news conference.
"We believe that, apart from the positive consequence of
this decision for public debt, pensions will also be safer."
By shifting some assets from the private funds into ZUS, the
government can book those assets on the state balance sheet to
offset public debt, giving it more scope to borrow and spend.
Finance Minister Jacek Rostowski said the changes will
reduce public debt by about eight percent of gross domestic
This in turn, he said, would allow the lowering of two
thresholds that deter the government from allowing debt to raise
over 50 percent, and then 55 percent, of GDP. Public debt last
year stood at 52.7 percent of GDP, according to the government's
The private funds hold assets worth about one fifth of
Polish economic output and are among the biggest investors on
the Warsaw bourse. Players in the pension market include
international firms such as ING, Aviva, Axa
, Generali and Allianz.
Bonds make up roughly half the private funds' portfolios,
with the rest company stocks.
Soon after Tusk unveiled his plans, the benchmark index on
the Warsaw stock exchange was down 2.6 percent on the day.
"This is worse than many on the markets had feared," a
manager at one of the leading pension funds, who asked not to be
identified, told Reuters.
"The devil is in the detail and we don't yet know a lot
about the mechanism of these changes, what benchmarks will be
use to evaluate our performance... (It) looks like pension funds
will lose a lot of flexibility in what they can invest."
Polish officials have tried to reassure investors, saying
the overhaul avoids the more radical options of taking both bond
and equity assets away from the private funds outright.
They say the old system effectively made Polish public debt
appear higher than it really is.
UNCERTAIN FUTURE FOR FUNDS
Poland has a hybrid pension system at the moment; mandatory
contributions are made into both the state pension vehicle,
known as ZUS, and the private funds, which are collectively
known by the Polish acronym OFE.
The funds would effectively be left with only the equities
portions of their assets, even this would be depleted, and there
will be uncertainty about the number of new savers joining.
"This may lead to the private pension systems shutting
down," said Rafal Benecki of ING Bank Slaski.
Policy in Poland is still much more prudent than in many of
its European peers. However, the reform could erode Poland's
reputation under Tusk for steady financial stewardship.
In the past few months, the opinion poll rating of Tusk's
Civic Platform party has, for the first time in years, slipped
below that of the main opposition, the conservative Law and
Though the next election is not until 2015, some analysts
believe electoral concerns are already influencing economic
policy and pushing the government to find scope for spending.