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									Changes in pension system and their impact on
 asset management/investment funds industry

                     28th October 2011 – Kyiv Workshop



Leszek Jedlecki
ING Investment Management (Poland) S.A.
  Agenda

 1. History
 2. Asset Managers
        a) Pension Funds
        b) Investment Funds
 3. Impact of Pension Fund Reform on the Market
 4. Pension System Status
 5. Challenges and Opportunities




ING Investment Management             2
  Agenda

 1. History
 2. Asset Managers
        a) Pension Funds
        b) Investment Funds
 3. Impact of Pension Fund Reform on the Market
 4. Pension System Status
 5. Challenges and Opportunities




ING Investment Management             3
  How it started in Poland?
  Milestones


 • Polish capital market traditions go back to 1817, when Warsaw Mercantile
   Exchange was opened (12 May 1817).

 • In 1938 130 equities were quoted on the Warsaw Stock Exchange (Warsaw
   generated 90% of country’s turnover, 6 other stocks only 10%).

 • 1945 – unsuccessful attempts to re-open the Warsaw Stock Exchange.

 • March 1991 - the Securities Trading & Trust Fund Act was passed by
   Parlament.

 • April 1991 - the first session on the new Warsaw Stock Exchange.

 • July 1992 - the first Polish investment fund was launched (Pioneer TFI).

 • January 1999 - the reform of Pension System started.

ING Investment Management                4
  Agenda

 1. History
 2. Asset Managers
        a) Pension Funds
        b) Investment Funds
 3. Impact of Pension Fund Reform on the Market
 4. Pension System Status
 5. Challenges and Opportunities




ING Investment Management             5
      Polish asset management industry
      Who is who?



                                                                                                               Open Pension Funds
                                            Mutual Funds
                                                                                                                 (OFE) 65% AuM

                                                                                                                      Mandatory second
Dual company structure
                                                                                                                      pillar of the pension
                                                                                                                      system
                                                                                Investment Funds
         Asset Managers                                                                                               PLN 236,9 bln (€ 59,2
                                                                                Corporations (TFI)
            2% AuM                                                                                                    bln) of AuM
                                                                                    33% AuM
                                                                                                                      Equity holdings
              Responsible for                                                       Legal owner of mutual
                                                                                                                      amount to 15.2% of
              managing funds                                                        fund
                                                                                                                      Polish market
              according to given                                                    PLN 119.2 bln (€ 29,8             capitalization
              mandate                                                               bln) of AuM (retail and
              Often offers investment                                               special funds)
              advisory services                                                     Equity holdings amount
              Discretionary porfolios                                               to 7.7% of Polish market
              management PLN 8.6 bln                                                capitalization
              (€ 2,2 bln)



 Source: IZFiA, Citi Investment Research and Analysis, Parkiet (30 June 2011)


  ING Investment Management                                                            6
        Structure of savings
        In which instruments is the money invested?


                          Assets distribution among investment vehicles
                                                       as of June 30, 2011 (in bn PLN)
                                                                                                                                               Equities ( 4.9%)

                                                                                                                                               Unit-linked funds (4.0%)

                                                                                                                                               Domestic (retail only) mutual
                                                                                                                                               funds (8.0%)

                                                                                                                                               Foreign mutual funds (0.4%)

                                                                                                                                               Open pension funds (25%)

                                                                                                                                                Bonds and bills (1%)

                                                                                                                                               Cash in circulation outside banking system
                                                                                                                                               (10.1%)
                                                               06 2004
                       06 2000



                                           06 2002




                                                                         06 2005


                                                                                             06 2007
                                 06 2001



                                                     06 2003




                                                                                   06 2006



                                                                                                       06 2008
                                                                                                                 06 2009

                                                                                                                           06 2010
                                                                                                                                     06 2011
                                                                                                                                               Bank deposits (46.6%)



    Overall savings are increasing (within the last 10 years they increased by more than PLN 600 bln (€ 150 bln),
              i.e. three times). As of June, 2011 overall savings amounted to PLN 946 bln (€ 236,5 bln).

Source: Analizy Online on the basis of data of NBP, GUS, TFI and PTE


     ING Investment Management                                                                                   7
  Polish pension system


                            mandatory                                       voluntary



      I PILLAR                    II PILLAR
                                                                                        IV PILLAR
                                  Public and                  III PILLAR
      Public and                                          Administered privately
      administered by the         administered by                                  (not supervised)
      public institution:         private institutions:                            Individual retirement
                                                           IKE -        EPP-
      ZUS – polish social         OFE – Open Pension       Individual   Employee
                                                                                   savings
      security institution,       Funds, contribution      Pension      Pension    Investment Employee
      contribution 12,2%          7,3% (-5%) of gross      Accounts     Programs   Programs
      (+5%) of gross wage         wage


                                                                = alternative that allows people
      = 40-60% of the wages received at the moment                  to maintain at retirement
                      of getting retired                         the previous standard of living

   source: FSA




ING Investment Management                             8
    Polish pension funds
    Market development since 1998




Source: KNF, Citibank. Assumed exchange rate for EUR/PLN = 4,00


 ING Investment Management                                        9
    Polish pension funds
    AuM (in mln PLN) by fund provider Q2 2011




Source: KNF. Assumed exchange rate for EUR/PLN = 4,00


 ING Investment Management                              10
  Agenda

 1. History
 2. Asset Managers
        a) Pension Funds
        b) Investment Funds
 3. Impact of Pension Fund Reform on the Market
 4. Pension System Status
 5. Challenges and Opportunities




ING Investment Management            11
    Polish investment funds
    Market development since 1991




Source: IZFiA. Assumed exchange rate for EUR/PLN = 4,00


 ING Investment Management                                12
      Fund managers in Poland
      AuM (in PLN mln) by Fund Provider Q2 2011

                                               • Polish mutual fund market is expected to grow steadily due to above
                                                 average economic growth, rising pension contributions and low current
                                                 level of wealth allocation to mutual funds.
                       6 out of 35 TFIs hold
                     56% of the market share   • Total AuM of Polish mutual funds: PLN 119.1 bln (€ 29.8 bln).
                                               • Total AuM of foreign mutual funds constitute 3.3% of assets gathered in
                                                 domestic funds and amount to PLN 4.1 bln (€ 1 bln).
                                               • Concentrated market: 6 out 35 asset managers have over 56% of market
                                                 share.




Source: Analizy Online as of June 30, 2011
Assumed exchange rate for EUR/PLN = 4,00

    ING Investment Management                                13
      What are the most popular strategies?
      Structure of investments

                                                                      Structure of assets
                                                                                            in EU mutual funds
                                                                                                 in EUR mln




Source: Citigroup Global Markets Poland – Investment Fund Strategy, EFAMA, IZFiA



   ING Investment Management                                                       14
  Polish market versus Europe and CEE
  Poland – strong position in CEE




                                    •    AuM in CEE amount to roughly
                                         1% of the total European market




ING Investment Management           15
  Agenda

 1. History
 2. Asset Managers
        a) Pension Funds
        b) Investment Funds
 3. Impact of Pension Fund Reform on the Market
 4. Pension System Status
 5. Challenges and Opportunities




ING Investment Management            16
 Impact of pension fund reform on the market


   • The reform of Pension System in 1999 had a key role in development of asset
     management industry in Poland.

   • The reform created strong institutional local asset managers.

   • Local institutional investors played important role during privatization process.

   • AuM of investment and pension funds increased from 5.5 bln PLN in 1999 to
     355.9 bln PLN in mid 2011.

   • Polish capital market is less dependent on foreign capital.

   • Polish local institutional investors are key players on the Warsaw Stock
     Exchange. As of June 30, 2010 it was the largest national stock exchange in
     CEE and one of the fastest-growing exchanges in Europe among both
     regulated and exchange-regulated markets.


ING Investment Management                  17
  Impact of pension fund reform on the market
  Total assets in pension and investment funds




    Source: Polish FSA, Analizy Online



ING Investment Management                18
  Agenda

 1. History
 2. Asset Managers
        a) Pension Funds
        b) Investment Funds
 3. Impact of Pension Fund Reform on the Market
 4. Pension System Status
 5. Challenges and Opportunities




ING Investment Management            19
  Pension system status



  • Aging population with lowering pension benefits.


  • Governments will not able to keep present replacement rate.


  • People should take care about their pensions themselves.


  • Governments should boost (mainly by tax incentives and education)
    development of voluntary pension schemes.


  • Growing awareness in Polish society about necessity for additional savings for
    pension (especially 40+ age).




ING Investment Management                20
  Pension system status
  Average monthly pension paid by ZUS




                                                       2002        2003          2004          2005          2006          2007          2008

                 Pension in PLN                      999,77 zł   1 051,09 zł   1 096,97 zł   1 127,23 zł   1 214,75 zł   1 251,74 zł   1 370,81 zł

             Pension vs. average                     63,70%       65,00%        65,00%        63,60%        63,60%        59,20%        57,10%
             remuneration in %1
  1   minus obligatory insurance contribution paid by insrured

      Source: ZUS, Departament Statystyki, "Ważniejsze informacje z zakresu ubezpieczeń społecznych", Warsaw 2009




ING Investment Management                                                         21
  Pension system status
  Population projection by economic age group (in percentage)

                                                                                                                                         Decrease of percentage of
30000
                                                                                                                                               the population at
        24545       24584        24600         24571          23718
25000                                                                     22503                                                                  working age
                                                                                         21625       21254         20739                         18-59/64
20000


15000

                                                                                            8997          9289          9622
10000                                                                        8368                                                        Increase of percentage of
                                                   6414         7380
            6082         6186          6295                                                                                                 the population at post-
 5000                                                                                                                                        working age 60+/65+

    0
          2007         2008         2009         2010          2015         2020          2025           2030          2035

                                              18-59/64    60+/65+




                                                       2007       2008            2009           2010           2015          2020      2025     2030      2035

                   18-59/64                        24 545        24 584       24 600         24 571          23 718        22 503     21 625     21 254    20 739

                    60+/65+                         6 082         6 186           6 295          6 414       7 380            8 368     8 997    9 289     9 622

   Source: Population projection for Poland for 2008 – 2035 Główny Urząd Statystyczny, Departament Badań Demograficznych, Warsaw 2009




ING Investment Management                                                            22
  Agenda

 1. History
 2. Asset Managers
        a) Pension Funds
        b) Investment Funds
 3. Impact of Pension Fund Reform on the Market
 4. Pension System Status
 5. Challenges and Opportunities




ING Investment Management            23
  Challenges & opportunities
  Pension sector reform


      The latest reform of pension funds system limited the amount of money
                transferred to 2nd pillar from 7.3% to 2.3% of salary.

                   CHALLENGES                            OPPORTUNITIES
      • Impact on Polish capital market:          • Weaker impact of pension funds
             • less money will be invested        on future pensions may lead to
             in stocks by pension funds           greater interest in 3rd pillar’s
                                                  solutions (PPE, IKE, IKZE -
             • reputation risk of Poland          voluntary pension savings) which
                                                  are offered by investment funds
      • Adverse change in savings                 managers
      structure – risk of real loss               • Pension funds may have more
      • Uncertainty about future pensions         than one investment strategy
      • Step back from public consensus
      solution from 1999

    Pension reform poses threat to Polish equity market. On the other hand it
               may lead to bigger demand for 3rd pillar products.


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           Challenges & opportunities
           Voluntary pension savings


                           Voluntary pension savings (3rd pillar) consists of individual pension acc. and
                         employees retirement plans. Nowadays, only 7.3% of Poles have savings in them.
                                                                                                           Source: Gazeta Wyborcza, Hewitt


                                                                                 CHALLENGES
Low generation renewal




                                                                    • For now, there are no strong incentives
  – ageing population




                                                                    for people to save in 3rd pillar (example
                                                                    tax deduction)

                                                                                OPPORTUNITIES
                                                                    • Uncertain future pensions
                                                                    • Great potential for growth in 3rd pillar
                                                                    products (according to PwC 20% of German and
                                                                    13% of Finnish population participates in voluntary
                                                                    pension savings plans)

                                                                    • Assets in 3rd pillar products are more
                           Source: GUS                              „sticky” than the regular funds savings

                    We see a great potential in 3rd pillar products as Poles will become more
                                 aware of need for saving for their retirement.


    ING Investment Management                                  25
  Challenges & opportunities
  Voluntary pension savings



  In Poland despite access to voluntary pension schemes, penetration is still very
  low:


  1. PPE – Employee Pension Schemes. Started in 1999. Penetration at 1.2%
     (PwC 2010). The main reason is not enough pressure on employers and
     bureaucracy
  2. IKE – Individual Pension Account. Started in 2004. Penetration at 3% (PwC
     2010). IKE grants tax benefits deferred in time.
  3. IKZE – Individual Pension Protection Account. New program, will be launched
     on 1/01/2012. It grants immediate tax benefit.


  Total penetration in Poland amounts to 4.2% of working population which is very
  low in comparison to other countries: 32% in Hungary, 20% in Germany and
  18% in Slovakia (PwC 2010).



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    PPE Market in Poland




Source: Polish FSA


 ING Investment Management   27
    IKE Market in Poland




Source: Polish FSA


 ING Investment Management   28
  Potential IKZE market



                                                                                                      Assuming 100%
                                                                                                        penetration
            24.1 mio
             people                                                                                     = 41.1 bln PLN
                                                 12 x Avg. Salary * 4%
              1st tax                                                                        • according to PwC current
            threshold                                                                        penetration in 3rd pillar in
                                                                                             Poland amounts to 4.2%
                                                                                             (1.73 bln PLN).
                                                                                             • if penetration rises to
             0.34 mio                                                                        level of:
              people                              100 000 PLN * 4%                           • Slovakia 18% - 7.4 bln PLN
             2nd tax                                                                         • Germany 20% - 8.2 bln PLN
            threshold                                                                        • Hungary 32% - 13.2 bln PLN


Source: Money.pl, PwC Comparison of systems of additional pension protection in Poland and othe UE countries, ZUS


ING                                                                   29
                            Thank You




ING Investment Management       30
  Disclaimer

   Niniejszy materiał został przygotowany przez ING TFI przy dołożeniu należytej staranności i zgodnie z jego najlepszą
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   pełni odzwierciedlają stan faktyczny. ING TFI nie może jednak zagwarantować poprawności i kompletności informacji
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ING Investment Management                                  31

								
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