Pension Trends: Gloomy Present, Bright Future?

In a series of articles, GKI Economic Research Co., presents the short- and long-term economic challenges facing the new Hungarian government. This week, they examine the situation of Hungarian pensioners, with a European perspective.

The researchers recall that in Hungary, the nominal average pension has increased by 131% since 2012, but this initially favorable figure is overshadowed by inflation data (prices have risen by 77% in the meantime), thus, real pensions have become 33% higher, while real earnings have increased by 92%, which has led to the relative impoverishment of pensioners. This is also shown by the fact that the average pension, expressed as a proportion of net average earnings, has fallen from 73% in 2012 to 50% in 13 years.

Long-time retirees at a disadvantage
Relative impoverishment is even more severe among older pensioners. The increase in the average pension is partly due to a demographic shift: the proportion of younger pensioners arriving with higher starting pensions, adjusted to today’s wages, is increasing, which raises the average. At the same time, the relative situation of those who have been retired for a long time is worsening year by year, even among pensioners.
This gap, GKI says, is mostly due to the abolition of Swiss indexation, as the current inflation-tracking system, although it preserves the real value of pensions, does not ensure that the increase follows the dynamics of wages. Previously, the situation was somewhat improved by the fact that a pension premium was paid above 3.5% GDP growth (but this was not built into pensions). In view of the increasing slippage, new forms of support have also appeared (typically aligned with the current elections): the partial introduction of the 13th month pension in 2021, and then the full introduction in 2022, although it provided an 8.3% increase in itself, this amount was not built into the basic pension provision. Similarly, the payment of this year’s one-week installment of the 14th month pension also qualifies as a one-time support (and corresponds to a 1.8% increase).

Plans burdening the state budget
The new government’s plan to increase pensions in a tiered manner (or to increase the minimum pension to HUF 120,000) would significantly increase pensions among the poorest, but it would also place a heavy burden on the budget, which is already struggling with challenges. According to GKI’s calculations, the measure would mean an additional expenditure of HUF 110 (net 90) billion per year. At the same time, it still does not solve the impoverishment due to inflation indexation. The planned SZÉP card benefit (which amounts to HUF 100-200,000 per year, depending on the amount of the pension) also has a significant impact on the income of pensioners. Its estimated budgetary expenditure is HUF 330 (net 260) billion per year, but it can also be said that it is not integrated into pensions.

Closer but still far from EU average
The average Hungarian pensions have approached the EU average. In 2012, the average Hungarian pension was EUR 330 compared to the EU average of EUR 1,045, which represented a 31% ratio. By 2025, the domestic value had increased by 80% (EUR 594), while the EU average had also increased significantly, by about 52% (2025: EUR 1,588). Thus, the average Hungarian pension increased to 37% of the EU average. However, the catching up of the countries in the region was much faster. In contrast to the six percentage-point improvement in Hungary, the other countries in the Central and Eastern European region achieved an average catching up of 13 percentage points, so they were more successful in reducing their disadvantage. As a result, Hungary slipped three places compared to 2012, making this country the one with the 4th lowest average pension in the European Union.