Controversy over abolition of pre-retirement allowance

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In late 2001, one of the statutory instruments accompanying Poland's national budget for 2002 abolished the 'pre-retirement allowance', which allowed people meeting certain age and employment requirements to cease work before retirement age. No new benefits of this sort are now being paid, although the payment of pre-retirement allowances allocated in the past is being continued. As of August 2002, almost 350,000 registered unemployed people were collecting such benefits. The amendment of the pre-retirement benefit laws has been challenged before Poland's Constitutional Tribunal independently by four parties, including the country's two principal trade union organisations, OPZZ and NSZZ Solidarność.

Until late 2001, the 'pre-retirement allowance' was one of the instruments employed by the Polish state to stimulate demand for labour. Its legal basis lay in the 1994 Act regarding employment and counteracting unemployment. The allowance essentially enabled people who still had not attained retirement entitlement under the normal rules - at present, this is associated with reaching a certain age (60 for women, 65 for men) and with spending a specified period of time in employment - to cease work at an earlier date and to qualify for a guaranteed benefit disbursed by the Labour Fund. The Labour Fund, in operation since 1990, is a state-run earmarked fund intended to alleviate the effects of unemployment through a variety of transfer benefits, primarily unemployment benefits, and to finance vocational activation programmes for unemployed people. The Labour Fund is supported out of contributions paid by employers for every person employed by them, out of grants from the national budget, and from a variety of other sources such as credit facilities and interest on bank deposits.

Operation of the scheme

The pre-retirement allowance is collected by recipients until they become eligible for retirement. The determination of eligibility for such benefits proceeded in the same way as for unemployment benefit (PL0210107F), meaning that the county employment office had to recognise the individual concerned as being unemployed. The most important factors taken into account in ruling on whether a person has unemployed status are: lack of employment and not engaging in any other gainful activity; being below retirement age; and not being eligible for disability benefits.

The 1994 Act instituted two distinct types of pre-retirement transfer payments, namely an 'allowance' and a 'benefit'. Classification of the applicant as an unemployed person eligible for unemployment benefits was a prerequisite for both. The difference between the allowance and the benefit lay in requirements concerning age and time spent in employment; the minimum limits for the allowance were lower. In order to be eligible for benefit, an employee had to have reached 58 or 63 years of age (for women and men, respectively) and to have worked 35 or 40 years (for women and men, respectively), though in the event of redundancies resulting from their employer's circumstances (most usually bankruptcy), these requirements were less strict. In order to qualify for the allowance, an employee needed to have spent 30 or 35 years in employment (for women and men respectively), though these limits were shortened to 25 and 30 years if at least 15 of those years were worked under special (ie particularly trying) conditions, as defined in the pensions regulations. The pre-retirement allowance was set at 120% of the regular unemployment allowance, rising to 160% for residents of areas afflicted by especially high structural unemployment whose employment ceased on account of their employers' circumstances. The pre-retirement benefit, meanwhile, was set at 90% of the pension, as determined by the appropriate regional authority.

The intention of the legislator was that the pre-retirement allowance should serve, along with the pre-retirement benefit, as an important element in the restructuring of employment in the national economy, most particularly in its waning branches and in outdated sectors of industry. One expression of this was the according of decision-making powers (and their prompt revocation, followed by reinstatement) to the cabinet with regard to the extension of pre-retirement benefits to persons losing their jobs as a result of restructuring of their branches of industry, if these people had not yet completed the minimum periods of employment needed to qualify for ordinary benefits. One area in which the government availed itself of this power was with regard to the armaments industry; in 1999, it instituted preferential pay-outs (until the end of 2000) for armaments workers made redundant as part of the sector’s restructuring programme.

Number of recipients

According to Ministry of Labour and Social Policy (Ministerstwo Pracy i Polityki Społecznej, MPiPS) data, there were 222,000 people collecting pre-retirement allowance and 55,000 people receiving pre-retirement benefit in 2000. By 2001, there were 288,000 people receiving the allowance and 90,000 collecting benefit (all these figures are in average monthly terms). According to the Rzeczpospolita daily newspaper, by August 2002 the number of recipients had swollen to 349,000 for the allowance and 141,000 for the benefit. The sudden upsurge in the number of persons seeking pre-retirement benefits observed in late 2001 (Rzeczpospolita reported that 45,000 applications were submitted in December alone) was triggered by the rumours that, very soon indeed, these benefits would be done away with (these rumours were soon substantiated - see below). People who met the formal criteria for the pre-retirement allowance and who expected to lose their jobs within the coming months applied at the state labour offices for registration as unemployed persons (in many cases, effectively shortening their periods of notice). In this way, they managed to obtain, before the new rules came into force, an income which, while modest, was at least certain (very important for the inhabitants of regions afflicted with high unemployment). According to MPiPS statistics, the costs of pre-retirement allowance and benefit for 2001 amounted to PLN 3,383,732,000, making them only slightly less expensive than the regular unemployment benefits.

Abolition of pre-retirement allowance

In drafting the national budget for 2002, Poland’s government adopted the priority of reducing the deficit, and as a consequence much effort was expended in order to reduce government spending. On 17 December 2001, when the package of legislation accompanying the budget proper was promulgated, the pre-retirement allowance was done away with, with the savings thus secured estimated at approximately PLN 115 million. No new allowances are now being paid, although the payment of those allocated in the past is being continued. Also, the 1994 Act regarding employment and counteracting unemployment was amended with regard to eligibility for pre-retirement benefit, extending it to women aged 50 who had worked for 30 years and to men aged 55 who had worked 35 years. In this way, the group of people entitled to the benefit was expanded; at the same time, however, people who had become eligible for the pre-retirement allowance before the enactment of these new rules lost the possibility of obtaining a pre-retirement benefit which would be higher than the allowance. Furthermore, in order to qualify for a benefit under the new rules, workers must now have spent at least six months in their last place of work – as opposed to the old rules, which took into account the period during which a worker received the unemployment allowance.

Reactions

The abrupt manner in which the rules were changes elicited a wave of criticism. Much publicity was generated around the whole affair, including by the Nationwide Association of Persons of Pre-Retirement Age, an organisation representing benefit recipients. The primary accusation levelled against the government referred to the effecting of changes without the usual 'vacatio legis'- ie the new rules became effectively binding almost instantaneously, as of 1 January 2002 , and there were no transitional instruments which would give persons leaving employment and becoming eligible for pre-retirement benefits the possibility of choosing the solution most favourable to them.

The two major trade union bodies - the All-Poland Alliance of Trade Unions (Ogólnopolskie Porozumienie Związków Zawodowych, OPZZ) and the Independent and Self-Governing Trade Union (Niezależny Samorządny Związek Zawodowy Solidarność, NSZZ Solidarność) - made a complaint about the way in which the pre-retirement allowance was done away to the Constitutional Tribunal (Trybunał Konstytucyjny), as did parliamentary deputies from the League of Polish Families (Liga Polskich Rodzin, LPR) (a right-wing party) and Bydgoszcz County Council. While these applications to the Tribunal were lodged separately, they will be considered together. Apart from the absence of 'vacatio legis' and of transitional instruments, the complaints refer to: undermining civic trust in the state and in the law; failure to abide by the statutory requirements concerning consultation with trade unions; and failure to address the situation of people who sought to make up for time missing towards the employment duration requirement for pre-retirement allowance by collecting unemployment benefit.

Commentary

While it is not known when the Constitutional Tribunal will consider the complaints concerning the amendment of the pre-retirement allowance regulations, the very fact that such complaints have been advanced independently by four parties, and also the implications for the finances of the state as well as for those affected by the new regulations (several hundred thousand people), meant that there is good reason to follow all future developments. The savings hoped for by the government may turn out to be smaller than expected, and the hasty manner in which the pre-retirement allowance was abolished in the name of short-term budgetary gains, leaving a sizeable group of economically impaired citizens with the bill, does little to strengthen social trust in the state and in the laws promulgated by its leaders. (Jan Czarzasty, Institute of Public Affairs (Instytut Spraw Publicznych, ISP) and Warsaw School of Economics (Szkoła Główna Handlowa, SGH))

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