What Will Be the Future Cost of Pensions?

According to the data published by the Polish Central Statistical Office (GUS), pension and disability pension entitlements of households accrued in social insurance as of December 31st, 2015 equaled PLN 4,959 billion (EUR 1,164 billion), which amounts to 276% of Poland’s GDP. Pension entitlements are the most sizeable part of the so-called “hidden” (or “implicit”) public debt. When compared to the “official” (or “explicit”) public debt, which amounts to 50.6% of GDP, the “hidden” debt seems to be overwhelming. Is it something that we should be concerned about?

Before we answer this question, let us look more closely at what these numbers show. Accrued-to-date pension entitlements (ADPE) represent the present value of all pensions that will be paid in the future on the basis of accrued rights. Current and future pensioners obtain the rights to receive pension by paying pension contributions. Importantly, this number shows entitlements that were accrued to date, meaning that no rights accrued after the reference year are considered. To put it differently, ADPE shows the cost of covering all commitments of the pension system in a theoretical case of closing it down immediately.


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