All over the world, pension systems have financing difficulties that need to be addressed. There are three ways of dealing with pension systems problems, namely subsidisation, rationalisation and reforming. Opposite to the first two, the latter one means a deep change of system fundamentals. The new system is a way of income allocation over life cycle. The system is entirely based on individual accounts. Individuals have two accounts each. At the day of retirement amounts accumulated in each of the accounts are annualised. Pensions depend on two factors: (a) accumulated capital, and (b) age of retirement. Such old-age pension system provides its participants with high security thanks to diversification of risk between two markets, namely the labour market and the capital market, and full link between contributions and benefits. Minimum guarantee is financed by the state budget. The new system is less exposed to typical problems of that markets. Additionally, it is more resistant to political pressures. Additionally, the new system is expected to create the following externalities: change of savings structure in favour of long term savings, less incentive for early retirement, and less incentive for hiding income. The old Polish old-age system was terminated on 31 December 1998 – a new one called “Security
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