The experience of Central and Eastern Europe (CEE) with pension reform can illuminate some of the pitfalls of embracing systemic reforms too eagerly. Subsequent reversal of these reforms occurred some years later as governments found themselves increasingly under financial strain.
As the largest economy in CEE, the case of Poland provides a good example. In 1999, Poland enacted “public-to-private” systemic pension reforms of the then-existing pay-as-you-go (PAYG) state system. The reforms introduced private pensions and diverted a significant share of workers’ contributions away from public pensions towards these private plans.
In a dramatic move in 2014, however, the Polish government then reversed these changes, with “private-to-public” reforms that saw the government transfer the equivalent of USD 40 billion at present exchange rates of bond assets that had been accumulated within the nascent private pension system to the public system. In 2016, the government announced a further reversal of the previous system.