Labour market segmentation and pensions in the Polish defined-contribution scheme

In this paper we apply a cohort model of the pension scheme to analyse the impact of labour market segmentation, in particular the use of contracts on mandate, on expected retirement benefits in Poland. Heterogeneity of labour force and impact of differences in years of employment, contributions paid and account indexation are taken into consideration. The effects of policy instruments aimed at increasing the stream of contributions paid by workers with contracts of mandate are evaluated. We find that the expected retirement benefit in the segment of contracts of mandate is lower by 17% than in the segment of employment contracts. The major cause of this gap between segments are lower contributions in the case of men and shorter life-cycle employment in the case of women. The obligation to pay contributions on all contracts of mandate from the minimum wage level will enable closing the pension gap by approx. 4.4 pp unless the obligation increases unemployment risk in the segment of contracts of mandate. Additional saving of 2% of the gross wage during spells of work on contract of mandate reduces the gap by less than 1 pp.