Dissertation_Paula Aleksandrowicz_12 ... - Jacobs University

Moreover, “pensions of persons working shorter periods but receiving higher wages were
higher than for those who worked longer and received lower wages, even if they had paid
the same total contribution when calculated for the whole working life” (Chłoń-Domińczak
2002: 138). The qualifying period for the pension under the old system was 20 years for
women and 25 years for men.
Reforms in 1997 and 1998 changed the defined-benefit pay-as-you-go one-pillar old-age
pension system to a multi-pillar one based on defined contributions, where the first PAYG
pillar was based on Notional Defined Contributions (see Chłoń et al. 1999 for a
comprehensive reform report). 25 The new pension rules affect birth cohorts from the years
1949 onwards. A novelty was the introduction of a fully-funded, obligatory second pillar
and of voluntary third pillar pensions. Non-contributory benefits were removed from the
system and left to tax financing. A qualifying period of 20 (women), respectively 25 (men)
years is required only for the minimum pensions. The pension level now reflects earnings
and contributions accumulated in the whole work career. The benefits are actuarially
adjusted, so that “[e]ach additional year of work and contributions will be rewarded with a
clear increase in the net present value of pension benefits, as the accumulated notional
capital increases and life expectancy decreases” (Chłoń et al. 1999: 23). This should incite
individual workers to prolong their working life. However, the reformers did not succeed in
pushing through a uniform, flexible retirement age of 62-65 years; therefore women may
still retire at the age of 60.
People born between 1.1.1949 and the end of 1968 could decide whether they wanted to
stay in the reformed NDC first pillar or whether they wanted to split their pension
contribution between the first and the second pillar. For my studies at establishment-level,
the old, defined-benefit pension system is of importance, as first old-age pensions from the
new system will commence only in 2009. Moreover, due to transitory rules, persons entitled
to early retirement under the old system may retire earlier till the end of 2008 (or even later,
if they have completed the required contribution period before 1.1.1999) with favourable
adjustments in the pension formula (Janiszewska-Wyszyńska 2007; Chłoń et al. 1999: 43).
However, the new old-age pension system is of relevance when determining personnel
policy in the mid- and long-term span and for persons who are not entitled to early
25 The NDC system is an accounting mechanism which individualises the link between benefits and
contributions and credits all lifetime earnings. It differs from a defined contribution plan in fully-funded
schemes insofar as the fund exists only virtually and capital is not built up, as it is still a PAYG system relying
on the intergenerational contract (Börsch-Supan 2003).
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