Proposed reform of pension system to result in lower pensions

From January 2008, the value of pensions is set to decrease compared with previous years. The allowance will be based on income earned from 1 January 1988 up to the time of retirement. Some future pensioners may receive 5% less than would have applied under the current rules; for others, the decrease may be as much as 15%. The government also plans to reform the disability pension system and to modify the official retirement age, limiting early retirement options.

The Hungarian government has arrived at one of the most crucial points in implementing its proposed reforms (HU0609029I): the restructuring of the state-run pension system. Although compulsory private pension funds were introduced in 1996, older generations remained in the public pay-as-you-go system (see the Hungarian contribution (69Kb, MS Word doc) to the EIRO comparative study on Occupational pensions and industrial relations). The government has to make decisions on increasing the official retirement age, review early retirement options, and devise new methods of calculating pensions and pension increments. The state-run pension system is accumulating a substantial deficit each year, which will probably increase in future years due to Hungary’s ageing population.

Stricter rules for early retirement and disability pension

Although currently the official retirement age in Hungary is 62 years for both men and women, on average most of the population retire four to five years earlier; therefore, the official age limit has to be raised. According to the National Pension Insurance General Directorate (Országos Nyugdíjbiztosítási Főigazgatóság, ONYF), more than 800,000 people receive a disability pension, and over half of this group are below the age of retirement. Thus, the government is attempting to limit early retirement options and to reform the disability pension system by introducing more rigorous regulations. The plan is to ensure that the disability allowance should be granted only to those whose health condition did not improve following rehabilitation according to expert opinion.

Reduction in pension benefit

Another part of the reform involves introducing a new method of pension calculation. In future, different figures and timeframes will be taken into account when the amount of pension is determined. The new calculation will likely result in lower pensions and the level of the reduction may vary depending on several factors. The allowance will be calculated based on income in the period from 1 January 1988 up to the time of retirement. Consequently, some future pensioners may receive 5% less than they would have received under the existing system, while for others the decrease may be as significant as 15%.

In practice, the change means that pensioners may lose their ‘13th month’ pension, even though Prime Minister Ferenc Gyurcsány declared on 1 October 2007 – International Day of Older People – that ‘the government will not change the system of the 13th month pension’. This supplementary bonus corresponds to an additional month in value. The prime minister added that the last large-scale reform of the Hungarian pension system was carried out in 1997 and that different parts of the current reform proposals have been discussed and negotiated by the social partners.

Position of social partners

The Co-president of the Hungarian Industrial Association (Magyar Iparszövetség, OKISZ), György Vadász, announced at a conference organised by OKISZ that reforming the pension system was unavoidable, as currently Hungary has to provide for 3.2 million pensioners. Mr Vadász highlighted that the country holds a world record for having the youngest pensioners in Europe, as the average age of retirement in Hungary is 53 years.

Conversely, the President of the Democratic League of Independent Trade Unions (Független Szakszervezetek Demokratikus Ligája, LIGA), István Gaskó, stated that LIGA would launch a series of actions as of 21 November 2007 to protest against the proposed reform. Mr Gaskó claimed that those who become pensioners in 2009 will lose the 13th month pension, and he criticised the government for not consulting or negotiating with the social partners. Furthermore, LIGA called on the National Interest Reconciliation Council (Országos Érdekegyeztető Tanács, OÉT) to launch negotiations on the reform of the pension system as soon as possible.

Máté Komiljovics, Trade Union of Hungarian Railwaymen