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Mutual funds and Employee Capital Schemes (TFI PZU)

Annual Report 2019 > Mutual funds and Employee Capital Schemes (TFI PZU)
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Situation on the mutual fund market

As at the end of December 2019, the overall domestic mutual fund market’s assets were nearly PLN 268 billion compared to PLN 257 billion at the end of the year before, representing an increase by 4%.1

Mutual fund companies – share in assets as at 31 December 2019 (in %)

Źródło: Izba Zarządzających Funduszami i Aktywami

In 2019, according to estimates by Analizy Online, the balance of payments to and withdrawals from retail funds offered by TFIs in the domestic market was positive at PLN 1.6 billion. After the first third quarters of 2019, the corresponding balance of TFI PZU stood at PLN 385 million and was one of the best results achieved by any player on this market. The financial market reacted to economic developments in accordance with expectations. After the weak 2018, there was a rebound. All groups of mutual funds posted y/y increases, the stock and commodity segments deserving special attention.

Employee Capital Schemes

The Employee Capital Schemes are the universal savings scheme for employees implemented in cooperation with employers and the state. The ECSs were launched on 1 July 2019, initially in the biggest employers employing over 250 people. From 1 January 2020 the ECS obligation covered also employers employing over 50 employees. Ultimately, as of 1 January 2021, the schemes will be introduced in all employers (with the exceptions specified in the ECS Act). ECSs will be managed by mutual fund companies (TFIs) which have been granted consents and licenses to operate in Poland. ECSs form a capital system that is not part of the pension system. Savings held on the employee’s account are privately owned, much like bank deposits and can be withdrawn at any time and are inheritable. A person saving his or her money in an ECS will be able to freely dispose of the funds accumulated on his or her account after reaching the age of 60, regardless of whether he or she is employed or retired at the time.

The time limit by which the company becomes subject to the ECS regulations depends on the number of employees.

Number of employees Date of determining the number of employees Start date of application of the regulations
At least 250 31 December 2018 1 July 2019
At least 50 30 June 2019 1 January 2020
At least 20 31 December 2019 1 July 2020
Other entities Not applicable 1 January 2021
Public finance sector entities Regardless of the number of employed persons 1 January 2021

Money on the participant’s ECS account come from three sources:

  • contributions financed by the employer (basic contributions, additional contributions);
  • co-payments financed by the State (welcome payment, annual co-payments);
  • payments financed by the ECS participant (basic contributions, additional contributions).

The basic contribution to the ECS will equal 2% of the participant’s monthly salary forming the basis for calculation of contributions for retirement and disability insurance payable by the ECS participant plus 1.5% of the salary forming the basis for calculation of contributions for retirement and disability insurance payable by the employer. Moreover, in the ECS management agreement, the employer will have the option to declare an additional contribution of up to 2.5%. This means that the employer will fund an additional contribution of at least 1.5% but no more than 4% for each employee. The ECS participant will also be permitted to declare an additional contribution of up to 2%, up to a maximum of 4% (sum of the basic and additional contributions). As a result, between 3.5% and 8% of the employee’s salary may be transferred to his or her ECS account. Administration of the ECS will be a tax-deductible expense.

Savings accumulated in the ECS will be invested in defined date funds, that is funds with a specific investment target date, which will be close to the participant’s expected retirement date. Depending on the participant’s age, the degree of risk will be modified: initially, funds will be invested in more risky assets (such as equities), and over time they will be automatically switched to safer assets (such as bonds). Owing to a precisely described investment policy of defined date funds, the security of assets managed under the ECS increases. The ECS offering entity should have the ability to accumulate funds in at least eight different defined date funds intended for employees of different age groups. Each defined date fund is required to invest funds accumulated in the ECS in accordance with the interests of the participants, striving to ensure the safety and efficiency of deposits made and complying with the investment risk limitation principles.

As at 31 December 2019, the net asset value of the defined date funds (ECSs) stood at PLN 84.7 million. (KNF).   

TFI PZU’s operations

Towarzystwo Funduszy Inwestycyjnych PZU (TFI PZU) operates on the mutual fund market in the PZU Group. It offers products and services for both retail and institutional clients – including additional investment and savings programs forming part of the third pillar of the social security system: Individual Retirement Accounts (IRAs), Employee Savings Plans (ESPs), Employee Pension Plans (EPPs), Employee Capital Schemes (ECSs), Company Investment Plans (CIPs) and Group Pension Plans (GPPs) which additionally offer Individual Retirement Security Accounts (IRSAs).

As at the end of 2019, TFI PZU had 36 funds and sub-funds in its portfolio and 8 ECS sub-funds. The year 2019 saw continued growth of the inPZU SFIO passive funds available on the platform. TFI PZU also provides asset management services.

As at 31 December 2019, TFI PZU managed a portfolio of net assets worth PLN 21.2 billion, which translates into a 7.9% market share. Accordingly, it is among the largest mutual fund companies in Poland – as at 31 December 2019 it was ranked fourth in Poland according to reports published by the Chamber of Fund and Asset Management (IZFiA). TFI PZU is also a market leader in the employee pension plan segment among institutions operating in this market with net assets of PLN 6.1 billion. In turn, the assets accumulated in ECS funds as at 31 December 2019 amounted to PLN 9 million, representing a 10.5% market share.

TFI PZU’s net assets (in PLN billion)

At yearend 2019, the net asset value of funds managed byTFI PZU was PLN 21.2 billion, up 7% from the end of 2018. As regards the most popular solutions, very notable was the increase in assets managed by PZU Obligacje Krótkoterminowe (former PZU Oszczędnościowy) by PLN 635 million, PZU Papierów Dłużnych POLONEZ by PLN 687 million, PZU Dłużny Rynków Wschodzących by PLN 163 million, PZU FIZ Sektora Nieruchomości 2 by PLN 142 million, PZU Dłużny Aktywny by PLN 134 million, PZU Stabilnego Wzrostu MAZUREK by PLN 126 million. The following funds recorded the largest decreases in net assets at yearend 2019: PZU FIZ Forte, PZU Akcji Spółek Dywidendowych, PZU FIZ Medyczny, PZU FIZ Focus, PZU FIZ Combo and PZU FIO Ochrony Majątku.

Changes in the asset value of individual funds were driven predominantly by:

  • active sales of funds as part of Employee Pension Plans;
  • active sales of PZU Oszczędnościowy and PZU PD Polonez for retail clients;
  • launch of inPZU SFIO, a new product line of passive funds;
  • difficult situation on the equity market causing outflows from this class of funds;
  • unfavorable sentiment towards closed-end funds on the domestic market.

Factors, including threats and risks, which will affect the operations of mutual funds and Employee Capital Schemes in 2020

The condition and performance of the market for mutual funds and Employee Capital Schemes will depend mainly on the following:

  • macroeconomic situation: the rate of economic growth and changes in the rate of inflation domestically and throughout Europe;
  • actions taken by central bank (Fed, ECB, Bank of Japan, People’s Bank of China) translating into global money supply and liquidity on the financial markets;
  • slowdown in the world’s largest economies and trade war (appreciation of the US dollar);
  • global geopolitical situation (US-Middle East conflict, development of negotiations on future EU-UK economic relations after Brexit, presidential elections in the United States and Poland);
  • uncertainties related to privacy and technology regulations, new taxes and the enactment of antitrust regulations;
  • slowdown in the economies based on the global automotive industry;
  • degree of popularity of Employee Capital Schemes which will translate into the amount of funds accumulated in ECS funds;
  • also in addition, short-term uncertainty related to the development and impact of the Wuhan coronavirus epidemic on global economic growth and the sentiments on financial markets.

1 IZFiA, assets as at 31 December 2019