The mandatory private pension pillar in Hungary: An obituary

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Mandatory Private Pension Pillar in Hungary: Terms of use: Documents in An ObituaryAndrás Simonovits AbstractIn 1998, the left-of-center government of Hungary carved out a second pillar mandatory private pension system from the original mono-pillar public system. Participation in the mixed system was optional for those who were already working, but mandatory for new entrants to the workforce. About 50 per cent of the workforce joined voluntarily and another 25 per cent were mandated to do so by law between 1999 and 2010. The private system has not produced miracles: either in terms of the financial stability of the social security system, or greatly improved social security in old age. Moreover, the international financial and economic crisis has highlighted the transition costs of pre-funding. Rather than rationalizing the system, the current conservative government de facto "nationalized" the second pillar in 2011 and is to use part of the released capital to compensate for tax reductions.

Democracy and welfare in hard times: The social policy of the Orbán Government in Hungary between 2010 and 2014

“…Most of these countries have chosen to temporarily re-direct part of the contributions paid to the private funds to the state budget. The Hungarian government took a step further and decided to nationalize private pension assets and to eliminate the private pillar altogether (Simonovits, 2011). This way Hungary returned to its pre-1998 mandatory pension system, consisting of a sole pay-as-you-go (PAYG) public scheme, that was developed after the Second World War (Inglot, 2008;Szikra, 2009).…”

“…Augusztinovics et al, 2002;Czajlik and Szalay, 2005), the private pillar has become surprisingly popular. Three-quarters of all employees (approximately 3 million people, including about 2 million older employees for whom the private pillar was not mandatory) entered private funds which accumulated an amount equal to about 10 percent of the GDP by 2011 (Simonovits, 2011).…”

The Impact of Living and Working Longer on Pension Income in Five European Countries: Estonia, Finland, Hungary, the Netherlands and Poland

“…The scheme has no inancial reserves whatsoever. The experiment with building up a second, pre-funded pillar ended in a near-complete U-turn and led to an almost complete defunding (Simonovits 2011).…”

The Impact of Changes in Second Pension Pillars on Public Finances in Central and Eastern Europe

“…For instance, the rise in Poland's public debt due to the second pillar is estimated at about 15 percentage points between 1999 and 2010 (Bielecki, 2011;Velculescu, 2011). Source: Bielecki (2011) andSimonovits (2011).…”

“…Finally, private pension pillars may promote long-term growth by encouraging long-term savings and therefore investment and improving the allocative efficiency of saving and investment decisions. Private pension funds can also contribute to higher economic growth via capital-market deepening, which in turn can improve capital-market regulation, transparency and infrastructure (clearing mechanisms and trading platforms), enforce better corporate-governance standards and reduce price volatility through long-term investment decisions (Simonovits, 2011;Velculescu, 2011).…”