Poland: Retirement: Compliance Update: Earnings Ceiling Eliminated and Auto Enrollment Delayed

Anticipated effective date: January 1, 2019

According to the Polish regulations currently in force, the basis for calculating the social security pension contributions in a given calendar year cannot be higher than 30 times the estimated average monthly remuneration for that year. In 2017, this amount was approximately PLN 127.890 (approx. EUR 30.000). Once it hits the limit, employer and employee no longer have to pay pension contributions.

At the end of 2017, the Polish Parliament passed a bill, which abolishes the earnings limit for social insurance contributions. We expect that new regulation will be effective from January 2019. It is all very vague as at the beginning of 2018 the President past on the bill to the Constitutional Court, due to an unresolved situation with the legal process of implementing the new law.

What do employers need to know and do now?

• This change impacts about 350 000 employees of all the employees in Poland with gross monthly salaries above PLN 10 700.

What should employers expect?

• The abolition of the maximum annual basis for calculating pension contributions will lead to a reduction in the remuneration received by the highest-paid employees and at the same time will increase the costs of their employment covered by the employer. So, employers need to find the budget for the increased social contributions. Second, employers might expect that employees will be interested in filling in the salary gap. In order to reduce the level of losses, which will be incurred by both employees and employers, companies might consider changing the legal relationship they have with the employees (for example hire them on the basis of civil law contracts).

What should employees expect?

• For most Polish employees, the new regulation will have no impact. Only 2 % of the highest earners should expect increase in the cost of remuneration and a corresponding decrease in employee net salary. On the other hand, getting rid of the ceiling may increase the pension amount at retirement age.

Postponement of pension plan auto enrollment for PPK and IPK retirement plan mandate

The Polish Government is working on changes in the pension system. This is since 2016. This pension bill is not published yet, but unofficially it is being said that changes will be effective beginning January 2019.

What do employers need to know and do now?

• Businesses will be required to contribute 4% of total wages (obligatory 2%, or 1.5%, employer contribution and obligatory 2% employee contribution). We assume that exemption to this mandatory requirement will be for companies that already have an Employee Pension Program (EPP/currently available DC plan) or establish EPP before the new law becomes effective. So, this year is the last call for the implementation of the employee pension scheme.

What should employers expect?

• The implementation of the new regulation will be divided into a few phases. In the first stage, the program will cover 2.8M employees of large companies employing over 250 people. The Ministry of Finance and Digitization plans to launch a second phase of mid-sized companies employing between 50 and 249 employees later on. Next it will impact small companies employing between 20 and 49 employees.

• All employees between 19-55 years old will be automatically enrolled into PPK. Taking into the consideration the obligatory employer contribution, employers should plan for an increase in retirement costs.

What should employees expect?

• Employees should expect lower net income due to their compulsory contribution in the new pension scheme.

Need benefits assistance in Poland?

Just let us know. We’d be happy to put you in touch with our Polish Partner MAI-CEE.