PPK. Simply worth staying.
On this website you will learn:
- How the auto-enrollment in Employee Capital Plans (PPK) works.
- Why it is worth staying in PPK.
- How much money can you save by staying in the plan.
Auto-enrollment in PPK works as follows:
Every 4 years, all those who opted out from PPK are enrolled again. It applies to employees between 18 and 55 years old.
Your resignation is valid until the end of February 2023. If you submit another resignation after this date, it will expire at the end of February 2027, and so on.
The first auto-enrollment in PPK will take place on March 1 this year. Then your employer will conclude on your behalf an agreement for running the Employee Capital Plan with a financial institution.
Why is it worth staying in PPK?
1. In PPK you save 2x faster
By default, you contribute to your PPK the equivalent of 2% of your gross salary. The employer adds the equivalent of 1.5% of your salary. And the state tops up your account with a welcome amount of PLN 250 and PLN 240 every year. In practice, to each PLN paid by you, your employer and the state add the other one.
Look, if you earn e.g. PLN 5,000 gross per month, you will accumulate PLN 2,590 in the first year. Of this amount:
- PLN 1,200 will be deposited by you. That is the equivalent of 2% of your 12-month gross salary,
- PLN 1,390 will be deposited by your employer and the state (equivalent of 1.5% of your gross salary + PLN 490 subsidies from the state).
Employer contributions and state subsidies are a profit for PPK participant. Thanks to them, you will accumulate money much faster than by putting aside the equivalent of your payment to the plan just on your own.
2. PPK means additional savings. Not only for retirement.
It’s true that taking money from PPK after the age of 60 is the most beneficial. However, you can use the money earlier without giving a reason. Just remember that:
- the withdrawal money will be reduced by subsidies from the state,
- 30% of what the employer paid will be added to your pension capital in ZUS,
- Income tax must be paid on the extra money that the fund generates.
However, you can withdraw money from PPK earlier without having to pay tax:
- in the event of a serious illness of yourself, your spouse or your child (up to 25% of funds in PPK, no obligation to return),
- to cover own contribution for the purchase of an apartment or construction of a house (up to 100% of funds, with the obligation to return this amount to PPK in the future. This option is available to participants who are under 45 years of age).
How much will you save in PPK?
You can easily calculate it with the help of two calculators:
For example, if you earn PLN 5,000 gross, then in the default version:
- Your monthly contribution is 2% of this salary (PLN 100)
- Your employer adds the equivalent of 1.5% of your salary (PLN 75) to this
Together with state subsidies, you will accumulate PLN 2,590 during one year.
In a simplified world, where salary increases by 5% per year, money in PPK does not work, there are no management fees, and subsidies from the state remain constant, the value of your savings after 30 years will grow as follows:
Source: TFI own calculations
PLN 147 000
such amount would be transferred to your PPK account in 30 years of saving by you, your employer, and the state.
This amount could be even higher. Money in PPK is invested on financial markets in Poland and abroad. It’s about getting them to work. The stock and bond markets can fluctuate a lot, just like after the outbreak of the pandemic. However, in a sufficiently long time, PPK participants can benefit from a simple fact - with small breaks, the world is constantly developing, and along with it the value of well-managed, global investments increases.
You can read more about how this money is invested and what are the potential risks and costs in the Q&A section below.
Facts and myths about PPK
The money in PPK is the private property of the participants
And it is guaranteed in PPK Act. The money can be used at any time, and after the age of 60 it can be withdrawn on preferential terms. What is very important, the money in PPK is fully inherited and without inheritance tax.
PPK is the second OFE (Open Pension Funds)
These are two completely different programs. OFE is part of the pension system and an element of contributions paid to ZUS. PPK, in turn, is a private long-term saving program. Unlike OFE, in PPK you have constant access to the accumulated money.
Participation in PPK slightly reduces the net remuneration
PPK participants cover the payment to the program in the amount of 2% of their gross remuneration. In addition, you pay an advance on income tax from the employer’s contribution. If you earn PLN 5,000 gross, your salary will be lower by PLN 113 (PLN 100 is your contribution to PPK, and PLN 13 is an advance payment for tax on the employer’s contribution). This is a small cost compared to the benefits you get by participating in PPK.
With PPK, you will collect private savings for the future.
Think carefully if you want to opt out.
Take into account that:
● state pensions are getting lower and lower.
● today’s 65-year-olds live on average more than another 16 years (data from the Polish Central Statistical Office).
● you need about PLN 1 million in savings to pay yourself an additional PLN 5,000 per month for 16 years.
Almost 3 million people are already participating in PPK.
Do you want to know more?
- What are Employee Capital Plans (PPK)?
PPK is a long-term investment program designed specifically for employees. It is co-financed by the employees, the employer and partly by the state, and the payments go to the employee’s private account.
- What does it mean that PPK is co-financed?Payments to your PPK account come from three sources. This means that you do not save on your own, and your future also consists of payments from your employer and subsidies from the state.
- What is the value of the payments and who pays them to PPK?Both your and the employer’s contributions are transferred to PPK by the employer.Employer:
- basic payment - 1.5% of your gross salary,
- additional payment – up to 2.5% of your gross salary.
Employee:- basic payment - 2% of your gross salary, which is deducted from your net salary. You can reduce your basic payment to 0.5% of your gross salary if your total income does not exceed 1.2 times the minimum salary,
- additional payment – up to 2% of your gross salary.
State:- one-time - PLN 250 welcome payment,
- annual payment - PLN 240 from the Labour Fund.
It is worth noting that contributions financed by the employer are your taxable income. Therefore, the employer deducts income tax on their part of contributions to PPK in accordance with your tax scale, which in effect slightly reduces your net salary. - Are the funds collected in PPK private property?
The funds you accumulate on your individual PPK account are your private property and are subject to inheritance.
- How do PPKs work?
Every month, the employer automatically transfers your and their part of the payment to your private account. You receive a welcome payment from the state and an annual payment once a year. Then, these funds are invested in the capital market through Target-Date Funds managed by authorised financial institutions.
- What happens to the money accumulated in PPK?
All funds accumulated on PPK accounts are invested in the capital market through Target-Date Funds. These funds reduce the level of risk over time. Depending on your date of birth, you are automatically assigned to a given fund. Funds are invested in one fund throughout the entire payment period, unless you decide to change the fund.
- What are Target-Date Funds?
These are investment funds specifically designed for retirement solutions. Target Date here is your estimated retirement date. Usually, a young investor is more willing to accept investment risk, for example, related to investing in shares. However, with age, the appetite for risk decreases, and the closer we are to retirement, the more stable the investment portfolio should be. Then the investor invests funds in less risky assets, for example, state treasury bonds. This idea is automatically implemented by Target-Date Funds - they ensure greater security of entrusted funds by a gradual change in allocation.
- How much does it cost to invest in Target-Date Funds?
All contributions from you, your employer and the state are invested. The work performed by the fund managers and the costs associated with operating the Target-Date Funds entitle financial institutions to charge a management fee. By law, however, such a fee may not exceed 0.5% of the value of assets under management, calculated on an annual basis.
- What are the risks of investing through Target-Date Funds?
There is no investment without risk. The funds invest money on the domestic and foreign capital markets, in various classes of assets, for example company shares or treasury bonds. The prices of these instruments are subject to constant changes and may fluctuate significantly, which translates into the value of the investment. Portfolio Managers exercise due diligence to generate profit for fund participants, but there is always a risk of losing part of the invested funds.
- Who manages Target-Date Funds?
At NN Investment Partners TFI, funds are managed by an experienced team of experts, repeatedly awarded with industry awards for their performance. They make investment decisions on a daily basis, bearing in mind the statutory guidelines for Target-Date Funds.
- Is participation in PPK mandatory?
Participation in PPK is voluntary, however, employees aged 18 to 55 who opt out from the participation are subject to automatic enrollment, which takes place every 4 years.
- How do I access my PPK? Where can I see my funds?
Access to your funds is provided by the nntfi24.pl transaction system.
- How will I get access to PPK transaction system?
Depending on the data provided by the employer, the login (Participant’s Number) will be sent to your e-mail address or correspondence address, and the PIN will be sent to your mobile phone number or correspondence address in a separate package.
- What should I do if I haven’t received a welcome letter or login PIN?
In this situation, contact the helpline and request that it is sent again. The welcome letter will be sent to the correspondence address or e-mail address provided, and the PIN to the correspondence address or telephone number registered in the system.
- What happens to PPK funds when I change employer?
You can have more than one PPK. This means that when you change employer, you can leave the funds accumulated in PPK on your current account - they will continue to be invested - and set up a new account with your new employer. You can also transfer funds from your old account to your new one to keep everything in one place.
- What are the options for withdrawing funds from PPK?
You can withdraw your funds from PPK at any time, but if you do it before reaching the age of 60, then they will be reduced by:
- capital gains tax (if applicable),
- state’s contributions,
- 30% of the employer’s payments, which will go to your individual ZUS account.
Early withdrawal without consequences is possible in two cases: - serious illness of you, your spouse or child (then you will withdraw up to 25% of funds without the obligation to return), - covering your own contribution in the case of a mortgage for the construction of a house or purchase of an apartment (you will withdraw up to 100% of the funds, and if you return them within 15 years you will not pay capital gains tax). This applies to participants under 45 years of age.
To take advantage of all PPK benefits, it is best to withdraw funds after the age of 60. You can then withdraw all funds at once, but it is best to withdraw up to 25%, and break the rest into at least 120 instalments. In this variant, not only will the instalment payments increase your monthly pension, but you will also not pay the 19% capital gains tax.
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