Europe Faces Pension Predicament – Wall Street Journal

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When she was young and living under communist rule, she recalls, her family worked the fields with horse-drawn plows and rarely left the village. She remembers winters so cold that a glass of hot tea placed on a window sill would freeze. For decades Ms. Trzcińska tilled a tiny farm of about 17 acres with her husband, Józef, retiring at 55, then the age when women could start collecting state pensions. They eventually gave most of their land to their son and two daughters.

For most of her working years, Ms. Trzcińska made no contributions to Poland’s special pension scheme for farmers. Modest though its payouts are—she receives the zloty equivalent of about $225 a month—barely a tenth of the plan’s benefits are covered by contributions from current farmers. Government budgets fill the gap.

Because her husband worked in a shop in addition to farming, he draws his benefit from the main national pension plan. After taxes, it equals about $200 a month. With their berry sales, the two have a combined posttax income equal to $6,400, about 60% of Poland’s median for two people.

“I’m not worried about myself,” Ms. Trzcińska said. “They already decided about my pension. But sometimes I see the debate and worry about what [my children’s] pensions will be.”

Her first daughter, 46-year-old

Anna Mazurek,

lives across the lane in Zaraszów. She teaches school—earning about $1,375 a month—cares for two children and spends many hours minding a shop she and her husband built. He too works at the shop, as well as growing wheat, barley and oats on their piece of the farm. “To live in the countryside, you have to have five jobs,” Ms. Mazurek said.

Once a year, the pension plan sends her an estimate of her benefits when she retires. The most recent was about $138 a month. A spokesman for the plan said it would provide at least $224 before taxes, a legal minimum the calculator doesn’t take into account.

An hour’s drive away in Lublin, a picturesque medieval town close to the Ukrainian border, her sister, Małgorazata Olechowska, works as an office manager for an EU-funded nonprofit for about $1,600 a month. She pays at least a third of her income in taxes, including 9.76% that is earmarked for retiree pensions. Her employer chips in an equal amount. The government pays all of that straight out to current pensioners, supplementing it with other tax revenue.

Małgorazata Olechowska and her mother, Krystyna Trzcińska, sharing tea and cakes.

The system is “a mysterious machine,” Ms. Olechowska said. To her, it feels as if “there’s a huge black hole, and our money is going inside, and we get nothing from it.”

What both sisters do understand is that they will have to work long past the age at which their parents stopped, contribute more and likely retire with a less-generous pension.

It may be a more secure one, however, thanks to the 2012 overhaul that made the plan financially sounder. The changes mean that contributions from current workers and their employers now fund 84% of benefits provided by Poland’s national social security system, which includes not just pensions but also health-care and disability benefits.

Ms. Olechowska, 41, has considered investing in property to help fund her retirement but has taken no action. Her older sister, Ms. Mazurek, doubts she will be up to managing schoolchildren in her 60s but isn’t sure what to do about it. When the government raised the age for receiving a pension, she said: “I wasn’t angry, but I felt helpless.”

The EU has pressed European governments to be more upfront about their pension costs. They are required to publish forecasts of each year’s pension payouts. Only a few countries estimate the total debt burden of the pension promises they have made. In political discussion, most governments treat this as a kind of costless debt held off public balance sheets.

Higher Pension Bills






Public spending

on old-age and survivors’ pensions; measured as a percentage

of GDP

Europe Faces Pension Predicament – Wall Street Journal