Experts have calculated how much you will get in retirement. You better start saving

In 2060, the ZUS pension may amount to only 20% of the last salary, which puts people who do not save additionally for the future in a difficult situation. Currently, the pension system in Poland covers 20.5 million people within the second and third pillar, and the accumulated funds amount to PLN 282.9 billion. The vast majority of this amount is managed by Open Pension Funds (OFE). However, the third part of the pension system, which includes employee capital plans (PPK) and individual retirement accounts (IKE), has not yet gained popularity, which means that many Poles will rely solely on the state pension system.

Insufficient retirement future

The Polish pension system is based on the principle of defined contribution, which means that the amount of the pension depends on the amount of contributions saved during professional life. Currently, the pension contribution is 19.52% of the salary, which translates to about two salaries per year. However, this is not enough for a decent life in retirement. As Agnieszka Łukawska, an expert at the Pension Institute, assesses, pensions from ZUS are to provide only basic needs, and we have to take care of the rest ourselves, saving additionally.

The 1999 pension reform was intended to stabilize public finances in the face of demographic change. However, the introduction of a contribution-based system reduced the average replacement rate, or the ratio of pension to final salary. Within a few years, the ratio fell from 52.5 percent to 42.4 percent. This means that retirees will receive benefits worth less than half of their final earnings. To meet international standards, the pension system should provide benefits at a minimum level of 40 percent, but the Polish system may soon cease to meet these requirements.

Changing the pension system is not easy, because decisions made today have long-term effects. Jarosław Oczki from Nicolaus Copernicus University in Toruń indicates that by 2060 the replacement rate may fall to 28.7 percent at the retirement age of 67 and to only 18.7 percent at the current retirement age of 60/65. Moreover, women and men who decide to retire at the age of 60 and 65 will receive significantly lower benefits compared to those who work until the age of 67.

The Polish situation is not unique – in many European countries, such as the Netherlands or Iceland, the retirement age is also rising, and benefits are often higher than in Poland. However, as Łukawska notes, comparing oneself to other countries is not always justified, because these systems differ from the Polish one in terms of structure and method of financing.

From the perspective of future generations, the Polish pension system will require increasing support from the state budget to equalize the amount of benefits to the minimum level. Currently, contributions cover only 84-85 percent of payments from the Social Insurance Fund (FUS), and the rest must be paid by the state. In the future, this dependence will deepen, because the number of people of post-working age will increase significantly – ZUS forecasts indicate that in 2061 there will be 806 retirees per 1,000 working people.

Saving for retirement is becoming inevitable, but there are still no effective mechanisms to encourage Poles to do so. As Łukawska emphasizes, it is necessary to introduce effective instruments and financial education from an early age. Despite the availability of products such as IKE, IKZE or PPK, Poles are reluctant to use them. At the end of 2023, participation in PPK was only 48.38%, which indicates low interest.

Poland in the ranking of pension systems

The Mercer CFA Institute Global Pension Index (MCGPI) ranks Poland’s pension system 29th out of 47 countries surveyed. Poland has been steadily losing ground in this ranking, mainly due to long-term solvency issues. To catch up with countries with better systems, Poland would need to implement significant reforms, especially in terms of the value of pension assets in relation to GDP and greater participation in employee capital plans.

Despite these challenges, the Polish pension system can still provide minimal benefits, but the key is to save for the future yourself. By working legally and paying contributions, we can provide ourselves with basic security in old age, but to enjoy a peaceful retirement, we need to save additionally.