February 17, 2023, 6:19 | Business Insider
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Photo: Janusz Pienkowski / Shutterstock
Several million Poles have to decide whether to save money for retirement under the PPK at the cost of reducing their salary. The example of our reader shows that in three years he had deducted just over 5,000. PLN, and there were over 10,000 in the PPK account. zloty. A lot, although the investment results were poor. We checked how much he could withdraw without waiting until retirement.
- Experts argue that you need to save extra for retirement so as not to receive starvation benefits. We checked how it looks in practice with PPK
- Our reader put aside 5.4 thousand from his own salary for three years. zloty. In addition, the employer added 4,000. PLN, and the state PLN 730. Funds earned him the least
- – Achieving a similar rate of return on the market without a very high risk is extremely difficult – emphasizes Jarosław Sadowski
- This money can be withdrawn at any time without waiting until retirement. How much of 10,000 zlotys will you take? We have specific calculations
- More such information can be found on the Onet.pl homepage
Poles have no idea what benefits they can expect in retirement. And if they think they know, these predictions have nothing to do with reality, according to a study conducted by UCE Research for Business Insider Polska. – A meteorite is flying at us, which we do not want to see – these are the conclusions drawn from it by Dr. Antoni Kolek, president of the Pension Institute.
The answer to future low pensions from the basic system is the government Employee Capital Plans (PPK) program, which was launched in 2019. Thanks to this voluntary form of saving for retirement, future benefits are to be higher. So far, over 2.5 million people have benefited from this opportunity, collecting a total of PLN 12 billion.
Potentially, three times as many employees could be included in the program, but for various reasons they decided against it. However, in February 2023, they will be automatically added to the PPK, which results directly from the regulations that stipulated that such an auto-enrollment will take place every four years. The exception is people who will be 55 years old before April 1, 2023.
The rest of the article is below the video
Due to the fact that the PPK is a voluntary option of saving for retirement, despite the auto-enrollment everyone can submit a declaration of resignation from making payments and participation in the program. The relevant document can be submitted to the employer after March 1, 2023.
PPK – how much will we pay and how much will we gain?
Although many Poles have doubts about joining the PPK, experts interviewed by Business Insider indicate that from the perspective of employees it is a very beneficial program, in which the employer contributes to a large extent to the savings.
The calculator prepared by the Polish Development Fund, which actively encourages PPK, shows that, for example, from the minimum wage, the employee’s monthly payment to PPK in the standard version (2% of the salary) is less than PLN 77. On the other hand in total, over PLN 122 goes to the pool each month (PLN 45 is from the employer).
In the case of a salary of 5,000 PLN gross, saving in PPK reduces the payment by PLN 109, but in return PLN 175 goes to the pension. With the average salary in medium-sized and large companies from the end of 2022 (PLN 7,330 gross), you have to take into account the salary lower by PLN 160 and an allowance from the employer in the amount of almost PLN 100.
Three years of saving in PPK and PLN 10,000 PLN on the account
It’s a theory. What does the practice look like? One of our readers shared with us detailed information on the status of his savings accumulated in PPK. He does not hide his positive surprise at the fact that with earnings close to the national average, he collected over 10,000. zloty, of which he himself put aside (he had deducted from his salary) a total of just over 5,000. zloty. There is also one profession in all this, but more on that later.
His first payment to the PPK took place in December 2019. In the meantime, he changed his job, so for four months his account was not credited with additional funds, and then only the funds previously accumulated in the pension fund “worked”. In total, it comes to almost three years of active saving money.
It turns out that after that time, PLN 5,000 was taken from his salary for PPK. PLN 380 77 gr. That’s how much less he got on the account as part of the paycheck. Instead employers added a total of 4,000 to his retirement savings. PLN 35 60 gr. In addition, there were bonuses from the state in the amount of PLN 730 (this includes a welcome payment of PLN 250 and annual payments of PLN 240).
After three years, payments to PPK in the amount of less than PLN 5.4 thousand zlotys became over 10 thousand. zloty.
It is worth noting a certain “inaccuracy” in the amounts of total payments (employee, employers and the state) and the balance on the PPK account. The table above shows 10,000. PLN 146.37, and the balance is PLN 10,000. PLN 302 26 gr. This difference results from the investments that the money accumulated in the PPK is subject to all the time. They are invested in less (eg bank deposits, bonds, etc.) or more risky assets (shares on the stock exchange).
How do funds multiply retirement savings?
Our reader points out that the proverbial spoon of tar in a barrel of honey in the case of PPK is the effectiveness of pension funds managing savings.
Out of over 10,000 paid in three years. PLN funds in this example generated PLN 156. This comes out to approximately 1.5%. profit for the future pensioner, i.e. an average of 0.5% per year. To put it mildly, there is no rage.
More than three years of history of the PPK account, to which additional payments cease to be made at some point (due to a change of job and the creation of a second PPK account in a different fund).
The chart above shows that Savings in PPK do not grow all the time. There are times when the invested funds lose their value. On the other hand, when the fund stops receiving further payments due to e.g. a change of job (a new account in another fund may be opened with a new employer), then there is a clear flattening and the balance depends only on the effectiveness of money managers.
It is worth noting that one person may have several PPK accounts managed by different institutions. All of them, after retirement, enter one pool, from which, according to regulations, money is paid out accordingly.
Does such a poor result of funds in multiplying savings disqualify PPK? Experts say no, because you need to look more broadly. For three years, the funds generated about 1.5 percent. profit but comparing the employee’s payments with the total amount of savings, the result is 91 percent. positive, with an annual average of 30%.
— Achieving a similar rate of return in the market without a very high risk is extremely difficult – emphasizes Jarosław Sadowski, an Expander expert, in an interview with Business Insider. He suggests that it is the people most experienced in investing who should appreciate the advantages of PPK.
How much can you withdraw from PPK before retirement?
A large part of Poles are afraid of PPK, bearing in mind what happened earlier with funds in OFE. It was only with time that it turned out that savers did not have full control over money in OFE.
The originators of the PPK and the PFR promoting this solution emphasize that these pension savings are private and if necessary you can make a withdrawal at any time without giving any reason. We checked what it would look like in practice for our reader if he wanted to receive money before he was 60 years old.
Let’s start with what will happen to the withdrawal of all deposited funds (except for the time being the profit generated by the funds). As PFR representatives indicate, if the participant makes a refund, he will receive:
- 100 percent your contributions, i.e. 5 thousand. PLN 380 77 gr
- 70 percent employer’s payments, i.e. 2 thousand PLN 824.92 (4035.60 x 70% = 2824.92)
- this gives a total of 8,000. PLN 205 69 gr.
In addition, PLN 155.89 was generated by pension funds. These profits when withdrawn before retirement are subject to taxation (19% Belka tax). After taking everything into account, our reader could expect a total of 8,000 to be credited to the account. PLN 331 96 gr.
Compared to the amount of almost 5.4 thousand. PLN deducted for three years from the salary, such a saver comes out to a plus of almost 3,000. PLN (+55%).
However, it should be remembered that the decision to withdraw money before retirement means giving up the amounts provided by the state. In our example, it is PLN 730. “Coming from the state – welcome payment and annual payments will return to the Labor Fund. Funds from the state are a bonus for saving up to at least 60 years of age, PFR explains.
One more question remains. What about 30 percent? contributions from the employer? Our reader will not receive these funds in cash when withdrawing, but they will not be lost, just like payments from the state. “In the case of a 30% return funds from the employer’s payments will go to ZUS and will be recorded on the account of the insured person in ZUS as his pension contributionThis amount will therefore be available after retirement.
Author: Damian Słomski, journalist at Business Insider Poland
