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Employee Capital Plans (PPK): the first steps have already been taken

Sebastian GOSCHORSKI
Accounting & Payroll Partner at RSM Poland

As of July, enterprises with a headcount exceeding 250 were the first to have entered the Employee Capital Plans and they started enrolling their employees to the long-term saving scheme. Therefore, it is a good idea to answer the question what financial institutions will manage the PPK and what principles of withdrawing funds from employees’ accounts will be used? I encourage you to read my article.

The first stage of the scheme covered about 4,000 employers employing more than 3 million people (1,551 of the largest companies that have launched Employee Pension Schemes have been exempt from the obligation to launch the PPK). Entities that have not signed relevant agreements with financial institutions yet will have very little time to meet this obligation; the deadline for concluding an agreement with a financial institution is 25 October of this year and 12 November of this year when it comes to running the PPK. For agreements for the management of the PPK concluded in July, the first payment to the PPK account shall be made either by 15 August or 15 September this year. For agreements concluded in November, the first payment to the PPK account shall be made by 15 December this year or 15 January 2020. Smaller companies will be joining the scheme in 6-month intervals.

What financial institutions will manage the PPK?

The choice of the financial institution managing the Employee Capital Plan shall be made by the employer upon consultation with trade unions operating in the enterprise or a representative of the employees employed in this enterprise. At present, there are 19 financial institutions authorised to run the PPK and manage these savings. The complete list can be found at:  https://www.mojeppk.pl/lista-instytucji-finansowych.html

Judging by the market size and having the story of the Open Pension Funds (OFE) in mind, I assume that that number of entities interested in managing the PPK will go down significantly, because only truly large-scale entities will be able to make money on their services.

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Withdrawal of money from the Employee Capital Plan

As I have already mentioned, the primary goal behind saving in a PPK is to save money you will later receive when you retire. The underlying assumption is that the money saved on the PPK account is supposed to be paid out once the employee turns 60 years old. However, the legislator has provided for several alternative ways of using this money, and they have nothing to do with saving for your retirement. The scheme allows one to withdraw your funds from the PPK in the following cases:

  1. Withdrawal once the statutory age has been reached. If a PPK member decides to withdraw his or her savings after reaching 60 years of age, 25 per cent of the savings shall be paid out as a one-off payment, while the remaining 75 per cent shall be paid out in at least 120 monthly instalments.
  2. Spousal benefit. This is granted if the spouse of a PPK member also reaches the age of 60 and the spouses jointly declare that they wish to receive payments in the form of a spousal benefit. Such a withdrawal shall consist in opening a joint PPK account for spouses, from which they will jointly withdraw money. The funds shall be paid out for at least 120 months. In the event of the death of one of the spouses, the spousal benefit shall be paid to the surviving spouse in the same amount until the funds are exhausted.
  3. Unforeseen life circumstances. A PPK member may, at any time, request a withdrawal of up to 25 per cent of the funds from his or her account in the event he or she, his or her spouse or child becomes seriously ill. A serious illness shall involve a permanent incapacity for work that entitles one to a work incapacity pension (pursuant with the Act of 17 December 1998 on Old-Age Pensions and  Disability Pensions from the Social Insurance Fund) and serious medical conditions listed in the Act. In such cases, depending on the request, the payment shall be made as a one-off payment or in instalments. It Returning these funds to the scheme will not be necessary.
  4. Purchase of an apartment. Money can be withdrawn from the PPK also for the purpose of covering your own contribution in the case of a mortgage loan, provided that you are not over the age of 45 (it is possible to withdraw up to 100 per cent of money from your PPK account, with an obligation to return it).

Summary

All employers obliged to introduce the PPK should take steps to launch the scheme in their company as soon as possible. The reason behind it is that launching the PPK is quite a complex process that requires many interactions and consultations with employees, in particular in the early stage. And the employees will probably regard the scheme with great mistrust and only a consistent effort of convincing them about the real opportunity of receiving additional money during their retirement may encourage them to start saving. What is interesting and attractive is the option of borrowing money from the PPK in order to purchase an apartment, even though, as a rule, it conflicts with the idea of making and multiplying retirement savings.

Finally, it is worth noting that the situation of self-employed has been recently clarified. By definition, they will not be covered by the PPK. However, they will have an option of making higher contributions to their Individual Pension Security Account (IKZE). This limit shall be increased from the amount of 1.2 times of the average salary to 1.8 times.

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