JOJ or JAI? We help in choosing Loan

25 Nov

 

 

In 2014, the option to decide where we want to invest our pension contributions in JOJ or JAI was introduced. Those who at the time preferred not to stand on either side and calmly observe the moves of these institutions, by the end of July 2016 had another chance to take some action. On the other hand, those who had previously paid 2.92% to JOJ from each payment, could make changes and entrust this task to JAI (and vice versa). The decision about whether part of the pension contribution will be transferred to JOJ or to the Social Insurance Institution (JAI) in the end puts the amount of our pension at stake.

JOJ or JAI – formalities

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It is worth getting interested in the topic, even if it is a very distant prospect for now. What does the procedure look like? If we are satisfied and support the decision from the previous transfer window, there is no need to submit the declaration again. The situation is different for people who are just entering the labor market and would like their contributions to go to JOJ. Failure to make any move and no declaration as to the fate of their two-pillar premium will result in the entirety of being sent to the Social Insurance Institution.

It is worth noting that the transfer windows have been open every 4 years from 2016 and cover the period from April 1 to July 31. During this time you can change your current decisions.

During the next transfer window, remember that the declaration can be submitted online, sent by post or completed at any JAI office. This does not apply to persons who are under 10 years of age under retirement age. In their situation the so-called slider – funds collected at JOJs are gradually (1/120 assets per month) transferred to the Social Insurance Institution. Such a mechanism is to protect future pensioners against the black scenario in which they lose their savings due to drastic drops on the stock market and no longer have time to make up for these losses.

The effects of choosing JOJ or JAI

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By the end of July, millions of Poles had to choose: either their retirement contributions remain in JAI, or they agree to share them between JAI and JOJ. It should be noted here that, regardless of the decision, 12.22% of our remuneration will go to JAI. We only have an impact on 7.3% of the salary – 4.38% of it goes to JAI, and 2.92% to JOJ, if we have recently decided so. Translating from Polish to ours: we choose between transferring the entire premium to JAI and the option where 85% of the payment goes there, and 15% is transferred to JOJ.

 

JOJ or JAI – what to choose?

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In our texts we have already referred to specialists from Expander many times. When it comes to choice: JOJ or JAI, there can be only one opinion – there is not much difference between transferring part of the contribution to JOJ and postponing retirement only in JAI. Regardless of our decision, this will not have a special impact on the final amount of the benefit. For example – if we pay PLN 2,000 a month as a pension contribution, only PLN 300 will go to JOJ. Not much, and let’s take into account that most often the contribution amounts are much lower than the one provided by us.

For the sake of balance, we must point out that this is still a slightly better result than in the case of JAI. The Polish Financial Supervision Authority has data showing that since 1999 the annual return on pension funds has been over 9%, while in the Social Insurance Institution the amount of savings increased by less than 7% per year. Let us remember, however, that JOJ is still under question mark and is even condemned to shut down. This was to happen as early as January 1, 2018. However, this deadline was moved to 2020. What will happen after closing the second pillar? In this situation, the money will go to JAI after submitting the relevant declaration, and the pension will be paid monthly. In turn, the decision to transfer IKE money leads to the possibility of withdrawing money only after 60/65 years of age. It is also worth remembering a transformation fee equal to 15% of the value of funds on your account.

JOJ and JAI

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If we have not made a decision this time, but we want to know the potential of JAI and JOJs, we pay attention to changes in rates of return, particularly visible in the case of JOJs. This is the result of government decisions regarding the principles according to which funds should invest the collected pension contributions. Until now, around half of them were investments in Treasury bonds and other government documents. The remaining part was distributed among shares on the stock exchange, deposits in banks and cash. At present, it looks like the JOJs have transferred their investment allocation to JAI, and thus have become equity funds.

When choosing, JOJ or JAI, let’s not forget that the funds that will go to JAI are virtual amounts on accounts, which, in fact, do not have to return to us in the form of a pension. This is only the assurance of the Social Insurance Institution. For now, the contributions we pay are allocated to the payment of benefits for current pensioners.

JAI, JOJ, better and worse endings

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Paradoxically, the future of those who are more suited to the Open Pension Funds option depended on the number of taxpayers who entrusted their contributions exclusively to JAI. The more people remained in JAI, the less new contributions were received by JOJ. At the same time, their amounts were higher due to the implementation of the slider mechanism. As a result, you will have to sell shares on the stock exchange, which in turn may translate into a decrease in the value of fund units. These forecasts are likely to come true if at least 85% of JOJ supporters move to JAI. Then, the amount that the JOJ will go to JAI in 10 years will be over PLN 20 billion higher than the one obtained from contributions. On the other hand, if only half of JOJ customers go to JAI, there will be no decrease in share prices.

We will not help you in choosing the current pensioner, because the deadline has already passed. We hope that you will remember our opinions in four years, when the next transfer window will appear. Who knows what the situation will look like then – maybe there will be no JOJs, as announced by the government? Or maybe JAI will change the conditions for using contributions …? One thing is for sure. It will definitely be loud.