The ECP versus social capital growth

Will the introduction of Employee Capital Plans (ECP) help build social capital in Poland? Will this capital will increase the social trust to the fellow citizens, the state, private enterprises and the financial system? At the present stage we can of course only predict such changes. But one thing is certain – harmonious cooperation between employees, employers and the state will create added value for all the concerned parties.

What is social capital?

Let’s first establish the meaning of social capital. Classic approaches define it as “the potential for cooperation rooted in interhuman relations and social norms which can bring benefits to people, groups and societies” or as “social networks regulated by moral standards or custom which tie an individual to society in a way that allows them to work with others for the common good.”

However, regardless of any differences in definitions, one shared factor is crucial – trust in people. And this trust is becoming one of the key long-term challenges faced by Poland, next to the demographic situation and the building of knowledge-based economy.

A starting point for Polish social capital

As the experience of other countries shows, the modern knowledge-based economy is driven by active, inspired, entrepreneurial communities that are not afraid to act and take risks. In the meantime, the results of the European Social Survey, an international research project, show that Polish people are still less trusting than other European nations.

And even though the situation is gradually improving, Polish people still have the least faith in the good intentions of others when compared to all 15 European countries covered by the survey – 24% versus 76% of Danish people in believing that other people try to behave fairly towards them. International studies show that human capital is more important than social capital when it comes to driving development in poorer countries.

But once a certain level of affluence is exceeded, social capital becomes decisive for further development. Consequently, sustaining high economic growth requires proper incentives for Polish people to build mutual trust and be more willing to work together.

Growing your savings builds a sense of security

Small savings, especially if accumulated over a long time, reduce the growth potential of investments and the GDP, and are responsible for the fact that Polish people have one of the European Union’s lowest level of financial assets. And the Eurostat data for 2016 are merciless. They show that the gross household saving rate (without accounting for the obligations contracted in that period) was only 4.36%.

On the other hand, the mean value for the European Union was almost 10%, and when it comes to countries culturally close to Poland, above-average saving rates characterise Slovenia (12.83%), Estonia (11.28%) and the Czech Republic (11.16%).

Which is why Employee Capital Plans may be a quality change that will visibly improve the financial security of Polish families and their standard of living in the long run. Because according to the legislation effect assessment attached to the PPK bill, the plans are expected to increase the total pension assets of Polish households from the 172.6 billion zloty recorded at the end of 2016 to at least 339.7 billion zloty after 11 years – in 2027 (assuming at least 3.5% PPK contributions).

And so the primary effects of PPK should include increased saving rate of Polish people and changes in the structure of savings, which may indirectly help boost the investment rate and accelerate the growth of the potential GDP of Polish economy.

Social support – a good start for the ECP

Although the PPK concept is not generally known yet, it is positively received by 52% of Polish people, according to an opinion poll conducted at the end of 2017 by IZFiA (Chamber of Fund and Asset Management). People see the following as special distinguishing factors of the PPK: co-financing by the employer, participation of the state (bonuses for those who save within the plan) and the possibility to have a higher retirement pension.

It will be crucial for increasing social trust to the scheme that all the contributions of the PPK participants will be private, paid to their individual accounts, inherited and withdrawable at any time. The PPKs will be safe and at the same time cheap.

The plans will be managed by financial institutions, mainly by investment fund companies licensed by the Polish Financial Supervision Authority (KNF). Low management costs of long-term investing will keep increasing the working capital and the profit for PPK participants.

Involvement of employers – last but not least

The voice and involvement of employers is also important. Unlike in PPEs (Employee Retirement Plans), the contribution will be split between three parties: the employer, the employee and the Labour Fund. Employers will also receive a new instrument to build bonds with employees, strengthen their loyalty, which is not insignificant considering the current situation in the labour market, where it is becoming ever more difficult to find and retain experienced employees.

This is why social responsibility should encourage employers to support employees in joining the long-term saving plan – with the PPK programme, employee members may accumulate substantial capital, and the additional profit from long-term investment will improve their work satisfaction.

Building social capital with the ECP

Employee Capital Plans may be a positive example of how to build social capital in Poland. Harmonious cooperation between employees, employers and the state will create added value for all the concerned parties.

Long-term investment will grow and the saving efficiency of Polish people will improve. The PPK programme will be generally available, safe and cheap. And this should increase mutual trust and openness to cooperation in society.