Sunday, 30 June 2013

Nie będę płakać po OFE - pension system overhaul

With some considerable delay, the Polish government unveiled this week the long-awaited report containing a comprehensive analysis of the Polish pension system and recommendations for coming changes into its workings. Regular readers of this blog probably know the topic and my opinion on it inside out, yet if somebody has to catch up, follow these posts. The report, in Polish, can be found here. I have not found any English-language summary of it, yet for the sake of brevity, I will not summarise it, nor repeat anything I have written before as there have been no fundamental changes that need to be underlined.

Defenders of private-run pension funds being a part of public social security system have, predictably, torn a strip off its authors, accusing government-linked experts of manipulations, lies and use of propaganda, funnily enough without pointing at any specific example. The critics also say calculations presented in the report are distorted. Due to shortage of time and data, I cannot check accuracy of calculations presented in the report, yet if the only accusation is that the government presented investment results of pension funds net-of-fees, rather than gross-of-fees, then jaw drops open helplessly. For my part, I have found the report surprisingly substantive and unbiased and see in it one of few commendable recent attainments of PO-led government.

Albeit, let’s face the truth, this overhaul is carried out not because minister Rostowski cares so much about future benefits of the Polish pensioners, but the key incentive for pursuing it is the tightness of public finances.

The report analyses inter alia the impact of private-run pension funds on capital markets. As an analyst I have seen a few examples of stock-listed companies in which pension funds were major investors and those companies, actively managed by key shareholders, have been well-run. For many companies capital provided by pension funds was indispensable for development and proved a successful investment. Pension funds also contributed to development of Warsaw Stock Exchange and helped it grow to be the biggest such institution in CEE. But there is also the other side of the coin. The processes which have had favourable impact on Polish capital market will one day, due to changes in demographic trends, reverse. Today pension funds are net buyer of securities, but in a few decades outflows from pension funds will surpass inflows, as fewer people will work and pay contributions and more will be paid benefits. Then pension funds will be putting a downward pressure on stock prices and will have to dispose of some of its assets… Due to active ownership of shares in stock-listed companies, the recklessly made decision to nationalise the pool of assets in pension funds invested in stocks as it would have detrimental impact on Polish stock market and economy.

Pension fund defenders convince pension funds have contributed to higher GDP growth rate, while the government claims the effect on economic growth has been negative. The former back their assertion by arguments I mentioned in the paragraph above, the latter point out transfers of part of pension contributions transferred to private-run pension funds, which had to be replenished by subsidies from state budget, increased government’s borrowing needs, debt-to-GDP ratio and thus debt service costs. However, the same debt was later purchased by pension funds, hence increased demand for borrowing from the government was balanced by increased demand from pension funds – those two have cancelled each other out, leaving yields on government bonds roughly unchanged, with some intermediaries (private companies managing pension funds) charging a considerable percentage of that “hollow circulation of funds” as fee for facilitating the process. Their revenues, from standpoint of future pensioners generated a loss.

The report highlights the problem of “double-tax generation”. One of the goals of the pension reform in Poland was a shift from pay-as-you-go to capital system. Under such move, one working generation had to pay contributions for benefits of current retirees and, at the same time, “save” for their own pensions. Is such burden not to heavy to carry? Authors of the reformed wanted to fill the gap by proceeds from privatisation, as the generation of current retirees, working in socialist Poland, had built many of the big state-controlled companies. Privatisation itself should be a goal, but not at any price and not to, let’s face it, meet current government expenses. The whole concept of privatisation as source of funding for the reform, resembles me a granny who sells her unnecessary jewellery to make ends meet. Whether it is wise – I am not the one to judge it…

The issue hardly anyone broaches is conditionality of state’s liabilities towards pensioners. In the Social Security Fund you have book records, while in pension funds you have government securities. Both are the government’s promise to pay, either directly a pension, either to repay bondholders. However, due to form of insurance, book records in Social Security Fund are conditional – these liabilities turn partly unconditional, when a Fund member retires; in pension funds, where assets can be inherited, the liability is conditional as long as a member does not retire. Minister Rostowski declared the part of assets transferred from pension funds to Social Security Fund will also be inheritable, hence in such way state budget would not be better off.

And the last problem, with which I have not come up – frankly speaking I hatched the idea on one of Internet forums – is the functioning of pension funds in the light of MIFID. Under investor protection regulations, if I was to pay my money into investment fund with exactly the same investment policy as a strictly regulated pension fund, I would be obliged to fill in a survey to check suitability of such investment for me, and in case of unsuitability, I would be warned against it and would have to sign a statement despite the warning I want to invest in a risky product. In the case of pension funds, nobody bothers to follow such procedure, which disproves the untrue claim that “in pension funds there are people’s money”.

The government presented for further discussion 3 variants:

1. The pool of assets in pension funds comprising of government securities is transferred to Social Security Fund and booked on accounts allocated to future pensioners. Other assets in pension funds remain intact, 2.92% out of 19.52% pension contribution goes to private-run pension funds which are not allowed to invest in government-issued securities, the rest goes to Social Security Fund. Furthermore, internal benchmark mechanism (pathological) is scrapped, but indebtedness ceiling level (currently 50%, 55%, 60% of debt-to-GDP) are accordingly decreased to prevent rise in public debt.

2. Citizens are free to choose, whether to participate in private-run pension funds, or to rely only on state-run Social Security System. The proposal, as I far as I could notice, does not pin down the split of contribution between state- and private-run parts of the system. This option is more controversial, as system participants would have to submit declarations they want to stay in a specific pension fund; not submitting a declaration would mean silent assent for transfer of assets to Social Security Fund, plus such decision would be irrevocable, while the decision to stay in a pension fund could be revoked any time in the future). Moreover, there is a problem what to do with shares of companies transferred to Social Security – this would be hard nut to crack, yet feasible, the report contains some recommendations with feasibility and drawback analyses. The idea to “write off” government bonds transferred to Social Security Fund would have to be thoroughly analysed by lawyers, as this smacks of sovereign default!

3. Extended freedom to choose – if someone chooses to stay with a pension funds, pension contribution to private-run funds would be 2 percentage points (in relation to pre-tax salary) higher. If you read between the lines, the message is “if you think private-run pension funds are so good, why not pay them more?)

The government also resolved that state-run Social Security System will be responsible for all benefit payments and assets from pension funds will be gradually transferred to Social Security Fund over last 10 years before retirement, to minimise risk of lower pension due to downturn on financial markets.

As commentators say, variant 3 is least likely to go through, while oppositional parties lean towards variant 2. I also hold the view that, despite some of its drawbacks, would be the lesser of all evils and, if amended properly (I put forward a citizen has to submit a declaration if they want to have assets allocated to them transferred to Social Security Fund and shifts between state-run and private-run funds could be done many times and in both way, of course in minimum intervals of let’s say 6 months), should be implemented.

What I did not like about the report is that private-run pension funds and their managers who have ripped over 17 billion PLN off future pensioners are presented as scapegoats. They are only a beneficiaries of legal framework created by politicians and if somebody is to blame, these are politicians, who passed such law, thanks to social support achieved thanks to several misrepresentations. Imagine you are a wife and your husband asks in his buddies to your house and lets them eat the whole content of your fridge, piss in your garden and demolish your furniture – your husband is to blame, not the buddies who were allowed to do damages.

One of my colleagues from work told me pension funds from the beginning were meant to be the scapegoat (not only the best, for reasons below, business on earth). In fact, to tackle demographic problems you only had to shift from benefit-defined to contribution-defined system, raise retirement age, scrap some privileges and create legal framework for voluntary private-run system of pension saving or insurance. At the end of the day, how high pension benefits will be depends only on standing of the economy, as investment results of pension fund in the long run depend on them. This means obligatory pension funds create little value added, and, provided calculations in the report are accurate, costs they generate are higher than value added they generate.

Now comes the time for consultancies. The debate will be fierce, as the prime minister said, big money is at stake – but for both sides of the argument. Minister Rostowski will play for more balanced budget, pension funds and its defenders will play for state-guaranteed source of profits on risk- and responsibility-free business. And I believe interests of the future pensioners are somewhere near the bottom of the list of priorities defenders are opponents of pension funds have.

I only fear the pension funds will draw another divide line in the Polish society. We have Poles who believe Martial Law in 1981 prevented a disaster and Poles who believes general Jaruzelski (turning 90 next Saturday) declared it despite there was no threat of Soviet intervention only to nip in the bud growing social movement. We have Poles who believe Smolensk crash was a tragic accident being aftermath of human errors and Poles who believe it was an assassination. From now we will have Poles praising government for dismantling the biggest scam in over 20 years of Third Republic of Poland and Poles believing the government wants to take over their money.

For the very end, I was deeply astonished by press conference on Friday by Mr. Balcerowicz, one of leading defenders of pension funds. When I looked at his wrathful face when he avidly spoke of “lies, misrepresentations and propaganda” I feared he would kick the bucket. He did not, but I am curious to find out why he failed to mention a single, specific lie and disprove it. Is it so difficult to say “the statement you can find on page X, paragraph X of the report, i.e. “quote” is untrue, because this and that”? Why has he not done it?

The release of the report coincides also with congress of the Civic Platform, held this weekend. It made me realise if I were to choose, I would opt for Donald Tusk’s platform, not Jarosław Gowin’s one. I opt for moderate economic and social liberalism, not conservatism. But above all, I opt for sound mind and common sense!

Sunday, 23 June 2013

Too much filth will kill you...

Back from holidays again – experienced a total logout from work and tomorrow the first thing I’ll need will be a password reset to access my computer. Even the weather diffidently signals time to return to corpo-world has come – the recent heat wave gave way to a downpour and temperatures plunged by 10C, giving a blissful relief from the heat. And may it stay so…

Got some time to catch up with film watching and finally watched Drogówka, the fourth film by Wojtek Smarzowski which went on the silver screens in February this year.

Mr Smarzowski’s film-directing attainment is definitely incomparable to any other contemporary film-maker in Poland. To put it briefly, in Smarzowski’s world there’s no choice between good and evil, the best option is only the lesser of tow evils… In his (in)famous four films he deftly depicts the darkest side of life, pouring the filth into the audience, making you want to take a shower and wash away all the dirt that has stuck to you while watching.

For many people I know even his first film, Wesele, released in 2004 and favourably received by critics, was intolerable. The film is actually a very ‘light’ depiction of the dark side of Polish mentality, showed in the background of a provincial wedding. The story of pregnant bride coerced to marry a groom bought-off by his would-be father-in-law sheds light on the worst traits of provincial duplicity: caring more about “what people say” (keeping up appearances) and money than about relatives’ happiness. Striking shady business is more important than grandpa’s sudden death, stolen Audi TT is more important than just-married wife and a child she will give birth to. Well-done and well-balanced art…

Dom Zły (especially with English subtitles, Jamie, are you still with us?) takes you back to the days of Martial Law and, in retrospections, to late 1970s. The picture is dirty, at times vulgar and explicit, yet taking into account the purport of the film, suitable. Form should fit the content and in this case the balance is still struck.

I’m ashamed to admit I haven’t found time, even in the last days (when still I was kind of busy doing some overdue refurbishment works around the house), to watch Róża. My mother, who watched it (but refused to watch it with me), told me cruelty and filth was dosed out moderately. The film, set in post-war reality of “regained lands” shows the dark side of events that actually took place and the depiction simply lacks censorship that would erase the ugliest parts. Yet, as critics say, given the historical background, use of abhorrent content is justifiable.

Compared to the newest Smarzowski’s film, the three previous could be classified as late-afternoon cartoons for polite children. In Drogówka, subsidised by State Film Art Institute and favourably reviewed by critics, the batty director has gone over the top and I will stand up for this view despite by general insensitivity to filth. The film was meant to over-expose all the pathologies plaguing the Polish police, in particular its road traffic forces. In fact only some of the pathologies showed in the film are the daily bread – these are mainly use of foul language or offensive jokes. Other alleged afflictions depicted in the film are simply marginal problems – gone are the days of wide-spread corruption, hardly ever can you find policemen gaining fortunes on bribery, regularly visiting brothels and raping accidentally met women. When the film was released I found the police representative’s statement, claiming the film discredits police, exaggerated and unfounded. Upon watching this and sticking it out (which I consider a success, as the plot is anything but gripping) I have to take back my words. As three previous film showed actual dark side of life, were waspish and cruel, yet fair, this one is a one massive distortion. The amount of obscene content is also fairly overdosed. The film could have done without explicit scenes of anal sex in the escort agency and one of the last scenes – oral sex on the back seat of a car, tragically ended by rear-ending could have also been edited out and without those two shots the film would have soaked with filth anyway. I have nothing against showing moral downfall, as I believe when it exists in fact, as such eye-popping naturalism showed to the public may help eradicate evil. In Drogówka intensity of filth might be unbearable even for the toughest audience.

I only wonder whether Mr Smarzowski takes pleasure in shooting such films. With each next film his exploration of dirt gets deeper, naturalism grows into over-naturalism and I don’t feel like watching his next attempt, no matter how many stars it receives in review in “Co jest grane”…

Sunday, 2 June 2013

Pamiątkowe rupiecie - book review

Two paragraphs below are an adapted and abridged translation of the book’s blurb.

Wisława Szymborska was anything but delighted to have learnt Anna Bikont and Joanna Szczęsna were writing her biography. As she found personal confessions inappropriate, she avoided like a plague telling stories of her private life. Despite this, the authors managed to persuade the poet to meet, which resulted in unveiling several astounding stories and facts from the past of the Noble prize winner. During a series of meetings Szymborska amazingly and humorously commented on various stages of her life and work. The story is supplemented with memories of the poet’s friends and pieces of poetry interspersed throughout. 

The book is a first full-scale biography of the Noble prize winner, substantially complemented in comparison to the first edition, issued after the Noble prize was awarded. The authors added chapters covering eventful last fifteen years of the poet’s life. They investigated hitherto unknown details from her life and enhanced the content with first-published photographs. The portrait of Szymbowska grew in dignity and depth, yet has not lost any of its lightness. The poet’s death marked the end of some era in the history of Polish literature. While reading this fascinating biography, full of anecdotes and poems, descriptions of journeys and testimonies of friendships, we can taste the climate of Szymborska’s era…
Encouraging, isn’t it? Even if the translation (mine) is imperfect…

Had a chance to read this book during early May weekend, yet have hung back on review, on account of, as usually, being short of time.

As indicated by the blurb, the insight into the poet’s private life was extremely hard-gained and it makes the book even more valuable and attention-gripping. Whatever you could say about Wisława Szymbowska, she was anyone, but a celebrity. The last thing she needed was publicity and as much as she could she avoided public appearances, which usually made her feel uncomfortable. Compared to most contemporary public figures who feel at ease being in the limelight, she was a misfit. I somehow feel sympathy with her in this respect…

The poet’s natural modesty, as emphasised repeatedly in the book, was her outstanding feature. And when encountering the poet, when observing her behaviour, you could feel this was not a feigned modesty, not a mask worn to gain accolades. Her manners exuded naturalness, you could almost sense her attitude to life was genuine, no room for acting…

Just to mention a few moments from the poet’s life that seem to deserve most attention in the context of how Szymborska will go down in history and controversies arousing around her. She survived WW2, witnessed inhuman cruelty and then the land she was born became a part of the Soviet bloc. The war brutality and duplicity of Church observed in the childhood put her faith in God to a test. Out of religious teenage girl, she evolved into doubting and seeking woman. She could not claim to be an atheist, yet rather an agnostic. Such openly declared beliefs turned against her in 1996. When she was awarded the Noble prize, right-wing lunatics instantaneously raised outcry over her steering clear of Catholicism and some other facts from her life she would never conceal.

These inconvenient facts Szymborska would never hide was her was post-war fascination with communism. Just like many people she wholeheartedly believed the new system would bring equality and common happiness. She actually discerned inhumanity of communism, but in the period of being totally besotted, she, and many of her peers, took in all the justifications for the system’s cruelty. She was infamous for writing an elegy after Stalin’s death (you can find it in the book), or writing commendation of North-Korean soldiers fighting capitalist invaders. She lost her faith in communism after the system thawed out in the second half of 1950s and in the 1960s she threw away her party membership card. She would never withhold her immature fascination with communism and claimed this was genuine, not opportunistic. She brought herself several times to account for this, yet the time could not be turned back. This stage in her life and poetry should not be forgotten, yet definitely should be forgiven.

Pieces of Szymboska’s poems have been deftly interspersed throughout stories from her life. I must admit the match is in most cases perfect – facts from life are marvellously illustrated with poems, often created on the spur of the moment. Or maybe the stories have been selected and put into apposite order to fit messages hidden in the outstanding poetry?

For the ones who have not been very familiar with Szymborska’s work, the book offers an opportunity to delve into remarkable poetry. As soon as you read several short poem, you realise the Noble prize was undeniably well-deserved. Some of the poems are translated into foreign languages, including English. The translation I read (I can’t quote it now, the book was borrowed and I forgot to scan the relevant page) was noteworthy and deftly rendered the poem’s message, while retaining natural flow and rhythm.

Szymborska’s artwork exudes with unique combination of simplicity and complexity. Striking a balance between the two in any genre is a challenging task and attaining it with a huge dose of sensitivity seldom happens. This only proves the poet’s uncommon aptitude that should outlast next generation of Poles.

Expect the next posting in the second half of June – holidaying until 16 June again ;-)