A hundred thousand stay in private pension scheme | Tamás Bosnyák

A hundred thousand stay in private pension scheme

February 1, 2011

About 3.3 percent of just over three million members in Hungary's mandatory private pension funds have opted to stay in the private system, according to the National Pensions Directorate. The total number of those who have chosen to stay is 102,019.


Monday, January 31st was the deadline until which people could present the declaration required to stay in the private pension scheme. More than half of those deciding to stay (61,052 declarations) are Budapest residents.

The private pension account of anyone who has not signed a statement will be closed as of March 1, and the account balance will be automatically transferred to the state pension fund, under what the government described as a "pension protection scheme". The law passed by the government last year states that those who remain in the private system will lose their entitlement to earn qualifying years for a state pension after December 2011, despite a 24-percent monthly pension contribution still paid by the employers into the state pension fund from their earnings.

This threat, analysts say, deterred many employees from staying in the private pension scheme. Until the deadline, tens of thousands of people deposited a declaration stating that they did not stay in the private pension scheme because, with the law, the government did not really provide a free choice and they reserve the right of joining the private scheme should any court made a decision against the government’s plan. Other experts point to recent surveys, which showed that more than half of the employees in Hungary have no clear idea about the pension system they are in.

Several trade unions have turned to the Constitutional Court, asking the new law to be annulled on grounds that it goes against the constitutional right of personal property ownership and the right of human dignity.

Gabriella Selmeczi, the government commissioner in charge of pensions, said on Tuesday that 96.8 percent of private pension fund members have chosen to switch to a state pension, which – she belives – indicates that the program is a "huge success". She added that within 45 days after the switchover, pension funds will have to work out a scheme for the takeover of assets, including providing data on the returns on savings accumulated in the individual private accounts so far, for which the government had promised to compensate.

The main opposition Socialists have from the very beginning criticized the government's move to channel pension savings into state coffers, claiming that the measure's purpose was to "finance the ruling Fidesz party's spendthrift economic policy". The Socialists said if the Constitutional Court rules in favor of the government's pension move, they will take their complaint to the European courts of justice in Strasbourg and Luxembourg.

Analysts say the public finances could post a surplus of as much as 4-6 percent of GDP in 2011, in part due to HUF 3,000 billion (EUR 10.9 bn) of assets in pension savings being transferred to state coffers.



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