What are the benefits of an ECP?
- Apart from you, both your employer and the Polish state (the “Labor Fund”) will also contribute to your savings.
- ECP savings are exempt from capital gains tax (which is levied on profits from most bank deposits, including the interest accrued on a bank account).
- The savings accumulated in ECPs are and will remain rightfully yours.
If I decide to participate, how much will I be paying into the ECP?
- As an ECP participant, you will generally make a basic contribution of 2% of your gross salary. This is deducted from your net earnings.
- If you earn less than 120% of the minimum wage, however, you can lower the ECP contribution to between 0.5% and 2% of your salary.
- It is also possible to contribute more – you can opt to make voluntary additional payments (for up to another 2% of your gross salary).
What conditions must be met to receive the state contributions?
- Participants are entitled to receive the welcome payment from the Polish state (PLN 250) if they jointly fulfill 2 conditions: remaining an ECP participant for at least 3 full months, and paying in the basic contribution for at least 3 months during their participation period. The welcome payment is made via the Polish Development Fund (PFR), within 30 days after the end of the quarter. The welcome payment is a one-time benefit, regardless of how many different ECPs one participates in.
- The annual state contribution (PLN 240 for each year of ECP participation) will be paid to nearly all ECP participants (with some exceptions as described in the ECP Act), provided that at least the minimum amount stipulated in the ECP Act is paid into their ECP account during the given calendar year, i.e. at least 3.5% of the amount constituting 6 times the minimum monthly salary. (In 2021, the minimum monthly salary is PLN 2,800 and so the sum of ECP payments entitling one to receive the annual state contribution is PLN 588). If a participant declares a lower basic payment (in view of their lower income), it is sufficient if at least 25% of the amount of basic payments due on 6 times the minimum salary is paid into their ECP account in the given calendar year (in 2021, this is 25% of PLN 588 – in other words PLN 147). Each participant is entitled to only one additional payment per year, regardless of the number of ECP accounts held.
Are the state contributions taxed?
- No, they are not. The welcome payment and annual payments from the Polish state are tax-free.
What are the costs of participating in the ECP?
- In addition to your contributions, your employer makes additional payments into your ECP account (at least 1.5% of your salary). You have to pay income tax on this payment (depending on your annual income, at a rate of 17% or 32%).
- Example: You earn a gross salary of PLN 3,800 per month. Your basic contribution is PLN 76, and your employer contributes an additional PLN 57 monthly into your ECP account. If you do not have any other income (so you are in the 17% income tax bracket), you will owe PLN 10 in income tax on the employer contribution. This will be calculated and deducted from your salary by your employer. Remember that you will receive non-taxable annual payments from the Polish state in the amount of PLN 240. You will not directly bear any other costs related to your ECP participation.
Do I need to apply to join the ECP?
- If you are more than 18 and less than 55 years old, you will automatically become an ECP participant. However, you can opt out at any time by submitting a relevant declaration to your employer.
- If you are 55–70 years old, you should declare your desire to participate in the company’s ECP by submitting an application to your employer.
- If you are over 70 years old, you cannot join an ECP.
Can I still make use of other forms of saving for my retirement (e.g. an Individual Retirement Account (IKE) or an Individual Retirement Security Account (IKZE) after I have joined an ECP?
- Yes, you can. You can join an ECP and still save on your Individual Retirement Account or Individual Retirement Security Account.
Who will manage my savings accumulated in the ECP?
- Your savings accumulated in the ECP will be managed by Investors TFI. We have been operating in the Polish market for over 20 years. For 19 years, we have been managing Employee Pension Programs on behalf of various companies.
- We have continually won awards in recognition of our funds’ outstanding performance. Ten times in recent years, Investors TFI has been recognized as Poland’s number-one fund management company.
Can I opt out of the program after I have joined an ECP?
- Yes, you can. You may opt out of the ECP at any time, while retaining the right to your savings.
- If you decide to stop making contributions to the ECP and at the same time want to withdraw the accumulated savings, you will lose all the State-awarded privileges for ECP participants (the state-contributed welcome and annual payments, the exemption from capital gains tax, and the waiver of Social Insurance Institution (ZUS) premiums due on the employer’s contribution). In other words, you can withdraw your savings after the amounts due to the State Treasury and the Social Insurance Institution (ZUS) are deducted.
What are my employer’s ECP-related obligations?
- to enter into an ECP Management Agreement and an ECP Operating Agreement in the name of and on behalf of employees;
- to calculate, collect and transfer ECP contributions for all participants;
- and to automatically re-enrol individuals who have previously opted out of ECP participation (this must be done every four years, for the first time on 1 April 2023).
Does Investors TFI charge a commission on payments made to the ECP?
- No, it does not. ECP contribution payments are fully invested in the sub-funds of your choice.
- Investors TFI charges only a small fee for the management of ECP sub-funds. This fee ranges from 0.39% to 0.47% annually, depending on the sub-fund.
- The management fee is factored into the participation unit price published on the Investors TFI website. Therefore, the value shown on your ECP account is already the actual amount of your savings.
What is the difference between basic and additional contributions?
- If you are an ECP participant, both you and your employer must pay a basic contribution: you contribute 2% of your gross monthly salary (if you earn less than 120% of the minimum wage, you can reduce your contribution to 0.5% of your gross salary) whereas your employer contributes 1.5% of your gross monthly salary.
- Additional contributions are optional and can be paid in by you (up to an additional 2% of your gross monthly salary) and by your employer (up to an additional 2.5% of your gross monthly salary).
Can employers apply different additional contribution rates to different employees?
- Yes, they can. Different additional contribution rates (capped at an additional 2.5% of an employee’s gross monthly salary) can be applied to different employees based on the company’s remuneration policy or the collective labor agreement.
Can I discontinue making the additional contribution, or change its amount?
- Yes, you can. You are free to change the additional contribution amount or discontinue paying it altogether.
- To this end, you need to submit a relevant declaration to your employer.
Is my additional contribution taxed as well?
- Your additional contributions are tax-free.
- Income tax must be deducted only from the additional contributions made by the employer.
What is the difference between a transfer withdrawal and a repayment?
- A “withdrawal” may be made at the request of an ECP participant and is available in the following cases:
- when the participant reaches 60 years of age,
- to cover one’s own down payment when building a house or buying an apartment, with the obligation to pay it back into the ECP within 15 years (applies only to persons under 45 years of age),
- when the participant’s spouse or child is seriously ill (up to 25% of the funds accumulated).
- A “transfer withdrawal” can be made:
- into another ECP account (e.g. when changing employer),
- into a savings or term deposit account of the participant after the participant reaches the age of 60 (provided that there is a provision in the deposit operating agreement which allows the participant to make use of the funds in the same way as in the case of a withdrawal from the ECP),
- into an Individual Retirement Account (IKE) of a deceased ECP participant’s spouse or to an Individual Retirement Account (IKE) of an authorized person,
- into an Employee Pension Program account kept for a deceased ECP participant’s spouse or for an authorized person,
- to a life insurance company (provided the participant has entered into an agreement with this company under which he or she will be entitled to a temporary or lifetime allowance after reaching the age of 60),
- into a savings term deposit or a term deposit of an ECP participant’s spouse or former spouse (in the event of divorce or marriage annulment, provided that the spouse does not have an ECP account).
- A “repayment”, in turn, is any case when funds accumulated in the ECP are taken out before reaching the age of 60, other than a “withdrawal” or “transfer withdrawal”.