Poland's pension system has first and second pillars that are complemented by voluntary pension savings. In addition to voluntary occupational pension plans, also introduced in 1999, personal voluntary schemes, sometimes referred to as the fourth pillar, exist in order to encourage additional private savings. Poland established a demographic reserve fund in 2002 to cover future deficits.

Reforms in 2011 to reduce the contributions paid to second tier pension funds tilt the system towards reliance on the state pension pillar.

The first pillar is a mandatory pay-as-you-go scheme based on notional defined contribution (NDC) accounts, run by the state-owned Social Insurance Institution (ZUS). It replaced the former defined benefit pay-as-you-go system. The NDC accounts mimic the principles of funded pensions in the public system. Benefits depend strictly on contributions. In an NDC system there is a hypothetical or virtual account for every participant, which contains all contributions made over a working life. 

Benefits are calculated taking into account average life expectancy at the time of retirement. Hence, incentives for early retirement are diminished and an actuarially neutral basis for pension calculation is ensured. The government pays contributions for the insured in several predefined circumstances, such as military service, periods of unemployment or maternity leave.

The total contribution rate is 19.5% of the employee's taxable income, split equally between employers and employees. Of the total contribution rate, most goes into the public, notional DC scheme. 2.3% is credited to the private individual account scheme, which is paid entirely by the employee. For members whose total pension – from the first and second pillar – is below the minimum pension and who contributed for the minimum amount of time, the state pays the guaranteed minimum pension from public funds.

Apart from the public system, Poland runs several schemes for certain occupational groups, such as farmers and selected civil servants (e.g. judges, policemen, military personnel and prosecutors). The state subsidises farmers' pension scheme by more than 90%. Both contributions and benefits are flat-rate and amount to roughly half the average of the public pension benefits.

The mandatory individual accounts in Poland take the form of open pension funds (OPF) and are of the DC type. The Social Insurance Institution passes the 2.3% rate of the mandatory system onto the OPFs.

OPFs are independent legal entities created and managed by a joint-stock company, a so-called general pension fund society.

Since 2004, each pension fund society can run two open funds, one of which may have a higher share of equity investments whereas the other is invested more conservatively. The creation of a pension fund society requires permission from the Insurance and Pension Funds Supervisory Commission (KNF). In terms of the governance structure, the pension fund society must have a management board (which is also the management body of the OPF), a supervisory board and a general meeting. The OPFs created by the pension fund society must be independent legal entities.

In 2011, the Polish government legislated to reduce the contributions it makes into OPFs from 7.3% to 2.3% with this money diverted to the state pension pillar. That threw the profitability of second pillar pension funds into question.

Open pension funds can invest at most 40% in equities from the regulated stock exchange market; 10% in equities in the regulated non-exchange market; 40% each in mortgage bonds, municipal bonds, corporate bonds; 10% in certificates of close-end investment funds; 15% in units of open-ended investment funds; 20% in bank deposits and bank securities. Investment in real estate is prohibited, whereas there are no limits to investments in state-issued bonds. Foreign investment is now restricted to 5%, although the European Court of Justice ruled in 2012 that this breaches the freedom of movement of capital.

Open pension funds must not invest either in shares or other securities of the pension fund managing society.

A pension fund society must establish a reserve account for the open fund from its own resources. This account is used to offset deficits arising from investment returns below the mandatory minimum return. If the reserve account is not sufficient to offset the deficit, the pension fund society must cover it through its own resources. 

Third pillar pensions have had a slow start in Poland, not proving to be very successful since their introduction in 1999.

Voluntary occupational pension plans (PPE) are DC plans with limited tax incentives. PPE contributions are on an after-tax basis and there is only a capital gain tax exemption for plan members and an exemption from social security contributions up to 7% of employees' salary.

If an employer establishes a PPE, it is obliged to pay contributions for its staff. The contribution cannot exceed 7% of the employee's salary. The contributions paid are exempt from social security levies up to 7% of the employee's gross salary. Employees can make additional contributions that supplement those of the employer. These cannot exceed 450% of the average monthly salary. All of the contributions are subject to income tax. There are no rules stipulating how pension benefits must be paid out, but they cannot be withdrawn before the member reaches retirement age.

Employers are restricted in plan design, with minimum requirements including a legally defined 'basic employer contribution'. The fund must be offered to more than 50% of employees in the company. Plan conditions must be negotiated with the unions or employee representatives.

All the managed schemes must be based in Poland. Investment funds, life insurance companies, specially established company pension funds, or foreign management companies manage the voluntary occupational pension schemes.

Compared to the OPFs, the PPEs enjoy more freedom in investing. Portfolio regulations do not foresee any limits on equities, certificates of closed and open-ended investment funds, or bank deposits. There is a 10% limit on mortgage, municipal and corporate bonds. Investments in real estate are prohibited.

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