Employee Capital Plans (also known as PPK) will directly affect over 13 million people. Will these plans affect you too?
Due to the growing number of post-working age people, and the increasing income generation gap between an individual’s active work versus fixed income years, the public and private sectors cooperatively have developed a solution to improve the quality of life for all Poles in their retirement.
This solution was the creation of the 2019 Employee Capital Plans Act (PPK). Thus, Poland had become the first country in the region to create a model of universal, voluntary employee savings. Such mechanisms are already used in other highly developed economies of Europe and around the world, including Great Britain, Sweden, Norway, Denmark, Australia and many more, with others soon to follow suit.
The PPK was officially launched on July 1, 2019 and was first implemented in companies with over 250 employees. Medium-sized companies followed, then small businesses were invited to participate. Finally the last stage which started on January 1st 2021, includes micro-enterprises and public administration employees.
The participation of each citizen in the PPK system is completely voluntary. But employers who are subject to providing compulsory retirement and disability insurance, will as of January 1st of 2021, be mandated to provide employees with an option to participate.
Each person over 18 years of age who is employed, and is subject to compulsory retirement and disability insurance due to this employment, can participate in the PPK system.
The following are considered valid forms of employment which permit enrollment into the PPK:
An employment contract
An agency contract or contract of mandate
A home contract
A membership in an agricultural production cooperative or a farmers cooperative association*
Membership in a supervisory board, provided that remuneration is received
The following are NOT eligible for PPK participation:
Self-employed, (i.e. a sole proprietorship owner)
An independent farmer that does not meet point 4 above*
It is up to individual employers to choose an authorized provider for their PPK program. This provider will manage the accumulated contributions of both employees and employers. Like employee salaries, contributions to a PPK are tax-deductible. The required employer share of the PPK contribution is 1.5% of the gross employee remuneration. The real cost incurred by the employer will be from approx. 1% to approx. 1.2% depending on the employee’s income. Moreover, the payment to the PPK is exempt from any social security contribution calculation.
Your employer will automatically sign up for the Employee Capital Plans system. This is the mandated, so-called “Implicit Consent” to participate in the system. If you as an employee do not want to participate in the PPK, you will be required to unsubscribe in person. To do this, all you need to do is provide your employer with a written declaration of this decision. This employee declaration automatically expires every four years. Your employer will re-enroll you in the scheme automatically, unless you re-submit a resignation declaration.**Lastly, there are two important age thresholds in the PPK system. Individuals over 70 regardless of employment are not entitled to PPK participation. Those between ages 55 and 70, are not subject to the automatic re-enrollment as described above.** In their case, there is a so-called “Alleged Disagreement”. They will not be automatically rolled over every four years and must rejoin the system manually.
Where will the money come from in my PPK?
Contributions into your PPK come from three sources: the government, the employer and the employee.
Employee contributions are the primary source of contributions to the system. In the basic and default variant, 2% of your gross remuneration will be transferred into the PPK account. You have the option to voluntarily extend these contributions to 4% of your gross salary. Yes, participation in the PPK will lower your take home remuneration.
Contributions from the employer are the second source of subsidies to the system. If you decide to remain in the system, your employer is required to transfer an additional 1.5% of your gross remuneration into your PPK account. He can voluntarily extend these contributions also up to 4% of your gross salary. The employer’s surcharge is therefore a kind of bonus and additional remuneration that a person participating in the PPK receives. However, the employee will have to pay tax on these additional contributions as described above.
Government contributions are the third source of contributions into the system. Each year, the state will pay additional PLN 240 into your PPK. Also a one-time bonus of PLN 250 will be credited upon initial enrollment.***
How are funds invested in PPK?
Your employer may entrust the management of the PPK into one of three types of entities:
Insurance capital fund
The entire PPK system is based on the so-called defined date funds. This means that as you get older, your deposits will become subject to more stable and secure investments, lowering the risk of incurring losses.
If you still have any questions about PPK after reading the article, please contact us. In the next article we plan to include Q&A containing answers to all uncertainties.