July 3, 2016 / 4:26 PM / 3 years ago

Poland to rule on pension fund future on Monday: sources

WARSAW (Reuters) - Poland’s government will on Monday announce its plans for the country’s pension system and privately held pension funds, two sources told Reuters, with companies and markets fearing a seizure of assets to plug holes in the state budget.

Deputy Prime Minister Mateusz Morawiecki speaks during news conference at the Prime Minister Chancellery in Warsaw, Poland February 16, 2016. REUTERS/Kuba Atys/Agencja Gazeta

The economy ministry has scheduled a news conference for 0630 GMT on Monday, to be attended by economy minister Mateusz Morawiecki and Pawel Borys, chief executive at Polish state fund PFR.

The ministry gave no further detail, but the announcement came a day after Jaroslaw Kaczynski, leader of the ruling Law and Justice (PiS) party signaled new plans for the assets held by local pension funds, known as OFEs.

“The conference will concern the OFEs as well as government plans for the pension system and how to spur the need for higher savings,” one source with knowledge of the matter said.

Another source confirmed that pension funds will be on the agenda, but neither source would either confirm or deny that the state plans to seize 100 billion zlotys ($25.2 billion) of stocks held by OFEs.

Representatives of both the economy ministry and state fund PFR were not immediately available for comment.

OFEs, created in 1999 as part of an overhaul of the retirement system, were intended to provide a savings plan to complement pensions paid out by the state.

Poland’s conservative government has said that it has no plans to plunder pension funds’ shares, but Kaczynski’s latest announcement said that their assets “could be a basis for new, important ventures” and “could build the power of our economic policy”.

BOURSE LIQUIDITY THREAT

Kaczynski did not elaborate, but the looming changes are a concern for companies in which pension funds hold large stakes. They fear a loss of control of dividends and finances and that a raid on the funds would increase the state’s role in the economy.

Such a move is not without precedent in the country that shook off communist rule in 1989 and is now the EU’s sixth-largest economy.

The centrist coalition that lost power to PiS last year transferred 150 billion zlotys of treasury debt into the state pension system to prop up the budget in 2014.

Another worry for the market is that a seizure of stocks from pension funds could also drain the Warsaw bourse of liquidity.

The funds — largely owned by foreign players such as Nationale Nederlanden, Aviva, AXA and MetLife — invest large amounts of taxpayers’ savings on the exchange. They hold up to 80 percent of some companies and account for about 20 percent of the Warsaw bourse’s value.

The possibility of government moves to seize control of such assets has prompted at least seven medium-sized companies to draw up plans to buy back their own shares or seek ways to reduce dependence on OFEs.

The government, which came to power last October, faces a struggle to contain the budget deficit, especially since launching a child subsidy program that was promised in its election campaign.

It aims this year and next to keep the deficit below 3 percent of gross domestic product, the maximum allowed under the European Union’s fiscal deficit rules, but some investors have expressed doubts over its chances of succeeding.

Editing by David Goodman

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