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Hungary: Comments on Upcoming Changes in Pension Fund System

Categories: Eastern & Central Europe, Hungary, Digital Activism, Economics & Business, Governance, Human Rights, Law, Politics, Protest

Recently, the Hungarian Parliament accepted a proposal which allows the dues paid into private pension funds to be transferred to the National Pension Insurance Fund for 14 months (between November 1, 2010, and December 31, 2011). György Matolcsy, Minister of National Economy, announced [1] (HUN) that the state needs HUF 30 billion monthly to keep its deficit at 3.8%.

If the proposal passes the final vote on December 13, members of private pension funds should declare by the end of Januray 2011 whether they would want to swap their accounts for the ones run by the National Pension Insurance Fund. Those who do not make a declaration will automatically be transferred to the state pension fund system. Those who choose to stay at private funds would lose their right to up to 70% of their pension, and can command over only 10% on their private accounts. According to the governing party, Fidesz [2],

[…] Staying in the private system means that concerned persons automatically resign the 24 per cent payment by the employer, and will receive pension after their own payment of 10 percent – Gabriella Selmeczi said. She added that the contribution of the employer at 24 percentage will be converted to tax by the bill. […]

Népszabadság, a Hungarian newspaper, published an interview [3] (HUN) with Mr. Matolcsy. The journalist asked him if anybody would be so crazy not to choose the state pension after this. The Minister of Economy answered:

[…] It may be attractive to keep the membership, for example, for the one who thinks free command over 10% is worth it, which he can pass down to someone. Even if there is no state guarantee behind it. In addition to this, he doesn't care about not having the right to state pension from February—and he does not trust the state anyway, he assumes that there won't be such a thing in 50 years. And there are the romantic fund members with emotional intentions, who haven't received huge yields—the average yield was 0.73% at the funds—but they believe a miracle is going to happen in the future, so they will get it. The one who ponders rationally, won't make a decision like this. […]

Zoltan Simon of Bloomberg compared [4] the announced changes in the pension fund system to the example of Argentina in 2001. Eva S. Balogh finished her post [5] on private pension funds by stating that Viktor Orbán, the Hungarian prime minister, would stop these changes only if the European Commission did more than wringing their hands – “Because it seems that he understands only the same kinds of threats he levels against his ‘subjects’.”

Jvizkeleti of Mandiner pointed out [6] (HUN) that this manoeuvre makes vassals from the youngsters of the aging Hungarian society:

[…] Let's see the image of the contemporary pensioner society! Do they remember anyone of citizens? It's not their fault because they had no choice. This system was, and that's all. They even had a little luck to retire sort of early, and there are sort of many people paying dues, so they live sort of well. The per capita income of pensioners today is higher than that of blue-collar worker families. It is guaranteed that this won't fall to our share. When we, today's 20-30-somethings, get there (in 40-50 years, we won't even live that), the eligibility for retirement will be much higher (70+), and the rate of those paying dues will be much lower. The big generation will retire before us, and we have to run up the chip for them. We will be the real vassals if we go back to the state-fund system. And we will have to vote for those who promise higher pension, and it is certain we will do so because the pension will be so bad. […]

He also criticized Mr. Matolcsy's promise of future compensation:

[…] The sum we would get then from the state budget, if we live so long, won't be even similar to the money we payed, not even to its indexed value. The fact that the likes of Matolcsy are ‘not accounting for’ any percent of employer's pension contributions in the system is totally the same because the only thing to share by then will be the money paid into the system by the future depositors. And that will be very thin. Accounting for it now means nothing for us because the money itself is paid now to the actual inactive citizens. […]

Cockpuncher of Bornírt blog asked his readers [7] (HUN) to look at the other side of the coin:

[…] Let's not look at what will be but turn the sentence the other way around. So till now the state guaranteed the money of private pension fund members. So: the founders of private pension funds knew in the moment of founding (indeed, before, of course they were well informed) that they are taking no risk. They can do anything the state will complement the people's money. It's quite a simple question: if a corporation which has an income of several billion is told that it should manage well the money paid in by shareholders, but it's not a problem if it doesn't succeed because the state vouches for everything, how would that corp. react?

I am telling you: it will produce shamelessly high expenses, so to say steal the money of depositors, saying maintenance costs a lot. Afterwards it will buy shares, investment certifications, etc. in other owned corporations to raise their price higher. That is using the money of depositors to support its other enterprises with some billions. […]

By now, Excel sheets (here [8] and here [9], in Hungarian) and blog posts have already appeared to help people calculate if it's worth for them to swap the private account for the state-owned one. A Facebook page [10] (HUN) is collecting signatures for a petition against forcing people to do so, and sharing news on the upcoming changes.

Péter Dániel, a lawyer who became famous for greasing a stuffed egg on a Manifesto of National Cooperation [11], started a Facebook event [12] (HUN) to get the people to put a blue ribbon on their clothes, cars, etc., to show their objection to “Orban-government's and FIDESZ-KDNP's injurious, anti-democratic and demagogue rampage, and to the restriction of the Constitutional Court and of free press.” (The latter will be covered in following posts soon.)