On 1st January 2019, the Act on Employee Capital Plans (PL-PPK) came into force, introducing a voluntary, private long-term savings system, part of the so-called third pillar of the Polish pension system. PPK is a system created jointly by the employee, the employer and the state, supervised by the Financial Supervision Commission (PL-KNF). Who can use PPK and under what conditions? How to implement it in a company? And why is it worth it when thinking about it in the context of building the employer’s image – recruiting and retaining employees.
Genesis of the PPK
The ideas behind the creation and implementation of the PPK system were:
- encouraging the employed to make additional savings for retirement;
- increasing the financial security of Poles and job security;
- multiplying the employees’ private pension savings.
The term ‘employed individuals’ does not only apply to people bound by an employment relationship, but also to people:
- performing contract work,
- those working under a contract of mandate or agency contract;
- who are members of an agricultural production cooperative.
An employed individual can withdraw his or her savings at any time, but it is most advantageous to reach for them after the age of 60.
Implementation of the programme in Poland
The PPK system was introduced in four stages:
- from 1st July 2019, companies with at least 250 employees (phase I) joined the system;
- from 1st January 2020, companies with at least 50 employees (phase II) joined the system;
- from 1st July 2020, companies that employed at least 20 people joined the system (Phase III);
- from 1st January 2021, companies with fewer than 20 employees and units from the public finance sector (Phase IV) joined the system.
Currently, all employing organisations meeting the statutory requirements are obligated to join the PPK system.
According to the PPK Act, the employing entities obliged to establish PPKs are considered to be:
- employers as referred to in Article 3 of the Labour Code
- outwork employers
- agricultural production cooperatives or cooperatives of agricultural circles
- entities with the supervisory board, if their members are remunerated for these functions.
Exceptions to this are:
- micro-entrepreneurs, to whom the PPK Act does not apply, if all employed individuals submit to them declarations to opt out of making PPK contributions,
- natural persons employing other natural persons to the extent not related to their business activity,
- employers who, on the date on which they become subject to the provisions of the PPK Act, operated an employee pension plan
( PL- PPE ) and made contributions to that plan of at least 3.5 % of salary, if at least 25 % of the employees have joined the PPE.
Rules for participation in the PPK system – universality obligation
The PPK Act implies mandatory universality, which means that everyone employed between the ages of 18 and 55 is, in principle, automatically enrolled in PPK by their employer.
It is worth remembering that any employed individual who has opted out of the PPK will be automatically re-enrolled in the system every four years, starting in 2023. However, employed individuals can opt out of participation in capital plans at any time. Employers are also obliged to take appropriate action in this respect.
Contributions to PPK
The programme distinguishes between four types of contributions:
- basic – made monthly by both the employee and the employer;
- additional – made voluntarily, as an additional amount of a certain amount;
- welcome payment – a one-off payment made by the state;
- annual surcharge – performed by the state in relation to participation in the PPK in a given calendar year.
How much are the contributions?
The amount of PPK contributions is as follows:
- the employed individual makes a monthly basic contribution of
2% of gross salary and a possible additional voluntary and
monthly contribution of up to a maximum of 2%. In total, a
maximum of 4%;
- the employer makes a basic contribution of 1.5% of gross salary
and a possible monthly additional contribution of up to 2.5%.
In total, a maximum of 4%;
- the state makes a one-off welcome payment of 250 PLN and an
annual surcharge of 240 PLN.
The funds accumulated in the PPK are the property of the system participant, so they can withdraw their savings at any time.
However, the most favourable situation is if the participant does not withdraw these funds before the age of 60.
Advantages and disadvantages of participating in the programme
The advantage is that the savings balance is made up not only of contributions from employees, but also of subsidies from the state and the employer. The system provides an incentive to save regularly. In addition to the above, the funds that the employed individual accumulates in his or her account are privately owned, so that he or she can always opt out of participating in the system.
Unfortunately, only in certain situations will the funds paid out represent 100 % of the accumulated capital, which is undoubtedly a disadvantage of PPK. In addition, in the event of an unfavourable economic situation, the PPK participant’s profit may be less than expected and the monthly salary is reduced.
Notwithstanding the above, funds accumulated in a PPK account can provide a cushion of security for the closest family members of the employed person, as the accumulated amount is inherited on general principles.
It should be remembered that even if none of the employees are interested in joining the system, there is an obligation to conclude an agreement with a financial institution allowing them to join at any time. There are few exceptions to the above and mainly apply to micro-entrepreneurs, though in these circumstances employers must take appropriate steps too.
The PPK programme has been successfully implemented for years with our law firm’s clients. Our experience in this area shows that employers who take timely action are less likely to suffer the negative consequences of neglecting things in this respect. Developing the right documentation and taking the right implementation measures is certainly the key to success.
Radosław Jastrzębski, trainee attorney-at-law (PL)