The European Commission took Poland to court on Tuesday over the country's cap on privately managed pension funds' investments abroad. Poland allows its pension funds, the mandatory second pillar of the pension system, to invest only up to 5 percent of certain assets in foreign countries. The funds had assets of some 137 billion zloty ($41.68 billion) in March.
"The Commission considers that limits on investment of Polish Open Pension Funds constitute an unjustified restriction on the free movement of capital," the European Union's executive arm said in a statement. Analysts say that reducing curbs on investment abroad would be good news for Polish pensioners as it would let the funds diversify their portfolios. However, such a move might hit the local stock market, already battered by the financial crisis.
"As an open pension fund, we look at the matter from the point of view of the customer, who needs diversification," Grzegorz Chlopek, deputy chief of the ING fund, told Reuters.
"Polish pension funds already own 25 percent of treasury papers issued on the local market and more than 30 percent of the free float on the Warsaw stock exchange," Chlopek said, adding that holding such large shares of assets could be risky for clients. Should Poland be found guilty of breaching EU law, the Luxembourg-based European Court of Justice will order the country to amend its rules or face hefty fines.
But the case could last months, if not years. Last year, Polish officials said they were working on legislation making it easier for funds to invest abroad, but the new rules would take effect only in 2010.
Poland had argued that it could cap the funds' foreign investment because they form part of public finances. However, the EU statistical office, Eurostat, has ruled that hybrid pension schemes are part of the private sector and can not be counted in public finance calculations. "Although they (the funds) are part of the pension system in Poland, they remain economic actors and compete with each other on that market," the Commission said.
The funds, created a decade ago as part of an overhaul of the pension system, complain that restrictions prevent them from allocating inflowing money in more profitable assets and diversifying their portfolios. The funds receive about 7 percent of Polish workers' wages to invest.