Hungary Forces Private Pension Members Back to State Scheme

by Jordan Yerman | November 24, 2010 at 01:03 pm

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Hungarian Government Uses Pension Push to Make Up Budget Shortfall

The Hungarian government is trying to make up a budget shortfall by forcing members of private pension schemes to come back to the state pension plan. If private customers refuse, they will be ineligible for any public pensions, which would account for nearly 3/4 of their pension payouts.

The Hungarian government's move makes it mandatory for those who wish to maintain their private pensions to explicitly opt out of the changeover; the deadline for the opt-out is Jan 31, 2011.

This move will move the equivalent of $13.5 billion from private to public pension coffers, but it is a shortsighted move. In time, those pensioners will want their pensions, and the government, which is making this move out of economic desperation, will have to pay out. It clearly is not positioned to do so.

This pension push is possible due to the overwhelming majority that the current Hungarian government enjoys. However, today's quick fix is tomorrow's economic disaster.

Hungarians will automatically be transferred into the state system unless they opt out.

At present, 10 percent of most employees' wages go into a private pension fund, while employers pay another 24 percent into state coffers. Under the government's new plan, those who stay in the private scheme can count only on their own 10 percent payments when they retire.

Those Hungarians who decide not to return fully to the state’s pension scheme from their private pension funds will lose their right to the portion of the state pension they would have received based on future contributions, Economy Minister Gyorgy Matolcsy said.

Thanks, chx, for the tipoff.