Employee Capital Plans (Polish acronym: PPK) – what is it all about?

Sebastian GOSCHORSKI
Accounting & Payroll Partner at RSM Poland

On Monday, 1 July, the Employee Capital Plans were rolled out. Organisations employing more than 250 persons were the first to join the scheme, and they automatically enrolled their employees aged 18-55 in the PPK. What are PPKs and what should you know about them? I encourage you to read my article.​

What is a PPK?

A PPK is a private long-term saving system aimed at boosting the financial security of Poles. The money paid to the PPK is supposed to come from several sources, i.e. the employee, the employer and the state budget in the form of a subsidy. The fact that the system is private means that every participant may withdraw their funds at any time and opt out from making further savings.

As there are many concerns among our fellow countrymen concerning the level of pensions and the replacement rate is decreasing at an alarming rate, the government has decided to introduce this new form of saving for your retirement. Since 1 January 2019, the Act of 4 October 2018 on Employee Capital Plans has been in force, pursuant to which employers are under obligation to introduce the PPK in their organisation within defined deadlines, the timetable for joining the PKK depending on the company’s size and type. This means that every employer will have to take action in line with the provisions of the act: the largest companies will go first, whereas small entrepreneurs and entities from the public finance sector will be the last to join.

Scheme participants

An employer is obliged to enrol its employees for the PPK according to the following rules:

• employees aged 18-55: compulsory;
• employees aged 55-70: upon an employee’s individual request, provided that their length of service with a given employer is a minimum of 3 months over the last 12 months;
• employees over 70 years of age: cannot be enrolled.

The underlying assumption of the PPK is that it covers not only persons with a permanent full-time job, but also those working part-time and employees on contracts of mandate, as long as they pay contributions to the Social Insurance Institution. From the perspective of the act, it does not matter if the employee is on a parental or maternity leave. Everyone has the right to opt out or join the scheme.

Stages of PPK implementation

In accordance with the act, the process of PPK implementation shall have the following schedule:

1. preliminary works, being primarily about including the additional burden for the company in its financial plan and defining a potential list of financial institutions that will cooperate with the company in question;
2. choice of a financial institution that will manage the PPK (the list of registered institutions is in the public domain). This choice must be consulted either with a representative of the employees or a representative of the trade unions. In this stage, a letter of intent shall be signed with the chosen financial institution if it has not been registered yet;
3. conclusion of the contract for managing and running the PPK (the company actually signs two contracts with the chosen financial institution:
   • contract for PPK management,
   • contract for running the PPK for and on behalf of employees).

PPK administration

Every employer shall be under obligation to administer the PPK, i.e. to properly calculate and make contributions to the scheme. What is more, the employer will have to ensure that PKK participants can make requests, such as to change the beneficiary, change the allocation of the premium, opt out from the scheme in writing, etc. In addition, the employer will be obliged to submit pre-defined information on PPK operation to employees and the financial institution with which the employer has concluded a contract for PPK management and running.

Level of contributions

The basic contribution financed by the employee shall amount to 2 per cent of their gross salary. Any PPK participant may also decide to make an additional contribution up to 2 per cent of their salary, which means that funds financed by the employee may amount to a maximum of 4 per cent (basic and additional contribution). In turn, the employer shall pay a contribution in the amount of 1.5 per cent of the employee’s obligatory contribution, increased by 2.5% of the voluntary contribution calculated on the basis of the salary. As a result, a maximum contribution to the PPK per one employee may amount to 8 per cent of the salary being the basis for calculating retirement and disability contributions of the scheme member. Savers will also receive a welcome payment of PLN 250 and a payment of PLN 240 each year (the assumption being that this subsidy is in the discretion of persons responsible for the state budget, and its payment hinges upon meeting a number of conditions).

Summary

Figures presented by Eurostat clearly show that pensions in Poland are among the lowest in Europe. The expected replacement rate (i.e. the ratio of pension to the last salary) for persons who have recently taken up a job is less than 30%. Thus, the roll out of the PPK is supposed to encourage people working in Poland to make additional retirement savings. The Employee Capital Plans are aimed at helping their participants in the systematic and effective collecting of funds they will use once they retire. And this is not a new solution, in principle, as it has already been tried and tested, for example in the United Kingdom.