Reform of pension system stirs controversy

The government’s reform of the pension scheme is aimed at geting several hundred thousand economically inactive Hungarians under the age of 60 back into the labour market. The proposed changes to the disability pension scheme could save the government some HUF 217 billion (€0.8 billion) by 2013. The government’s plans to reduce disability pension benefits and scrap early retirement are opposed by many groups, particularly NGOs and trade unions who are keen to manintain the status quo.

Background

The Hungarian government’s reform of the country’s disability pension and early retirement schemes is driven by the fact that the activity rate of the working age population in Hungary is extremely low (55.4%) compared to the average rate for EU27 (64.6%). Around two-thirds of working Hungarians take early retirement – the second highest proportion in a survey of 26 countries by researchers GfK in a survey commissioned by insurance company AXA.

However, Hungary currently spends much more on support for disabled people than other countries at a similar stage of development or with similar health care parameters; for example, Hungary (ten million inhabitants) spends 2.1% of its gross domestic product (GDP) compared to Slovakia (five million inhabitants) which spends 1.3% of GDP.

Eurostat data confirm that welfare spending (relative to GDP) in Hungary is the third highest in the European Union. Almost two-thirds (six million) of the population receive welfare benefits of some kind each year, with the total spending amounting to more than half of GDP.

Disability pension

A recurring issue for economists is the situation of disabled pensioners in Hungary. Neighbouring Slovakia, at half the population size, has 70,000–80,000 disabled pensioners yet Hungary has ten times more. According to the Hungarian Pension Insurance Agency (ONYF), a total of 728,601 people were receiving a disability pension at the beginning of 2011. This was slightly less than in the previous year when 759,300 people were receiving one. However, the situation appears worse when it is considered that approximately half the recipients are under the age of 60.

In the early 1990s, the policy of the first freely elected conservative Hungarian Democratic Forum (MDF) government to return to a market economy released a large number of unemployed into the social system. Since then disability pensions have been an important element of the Hungarian budget. The state spends some HUF 25.5 billion (€93.6 million as of 1 September 2011) every month on disabled pensioners under the compulsory retirement age (currently 62–65 depending on the year of birth).

National Economy Minister György Matolcsy recently announced that the review is expected to redirect 100,000–150,000 of Hungary’s current 350,000 disability pensioners (under the age of 57) into the labour market either through part-time work or as part of the Government’s new public work programme. The government has stressed that Hungary is in no position to go without the labour of experienced, active people over 40 and that such people must be given the opportunity to work until they reach retirement age.

According to György Matolcsy, the legal right of all disabled pensioners to benefits will be reviewed, although the question of whether those with five years or less to go before retirement (that is, those currently aged 57–62) have a place and chance in the labour market will be taken into account.

He added that the government aims to cut HUF 217 billion (€0.8 billion) from the annual budget by 2013 (HUF 12 billion this year, HUF 88 billion next year and HUF 117 billion in 2013) by getting people off disability pension benefits.

Early retirement

According to an analysis by the Századvég Foundation, the system of early retirement in Hungary is one of the fairest in Europe. Selected professions with higher health risks (such as police officers, fire fighters and train drivers) benefit most from the current system as they can retire at 45 after 25 years’ service, and before reaching the compulsory retirement age. Such people receive a pension, which is equivalent to a full pension, averaging HUF 120,000 (€440) each month from the state. Furthermore they can continue to work. But according to the new amendment of the Constitution, the early retirement of law enforcement professionals could be reduced and withdrawn in the future.

Certain groups specified by the government (such as women who have worked for 40 years) will still be able to qualify for early retirement. Retirees under 62 may receive a social subsidy instead of their current pension as an incentive to take up employment again.

Reaction of non-governmental organisations

‘We feel we are to be scapegoats and, according to the government, the disabled pensioners cause the troubles and problems in Hungary,’ said Lajos Hegedűs, President of the National Federation of Associations of Disabled People (MEOSZ). He added that there are currently some 350,000 disabled pensioners under the age of 57, most of them with only primary education and used to work in heavy industry. Their average service period is 28 years. MEOSZ believes that, even if there was a general shortage of employees, the employers would not employ these people due to their lack of education and the lack of jobs for them. Nowadays only 9% of disabled people in Hungary are in employment.

Lajos Hegedűs emphasised it is not yet known how the Government plans to carry out the review of pensioners’ claims but, according to experts, at most 60,000 can be checked. He concluded that the Government does not seem to have a plan to bring disabled pensioners back to the labour market. He also regretted that the Government seemingly had no intention of asking MEOSZ for its opinion.

‘Companies have the openness to employ people with a disability but most of the working conditions are lacking, so the most important task is to create them,’ claims Péter Kemény, leader of the rehabilitation division of Work Force Ltd (a personnel service provider). He emphasised that the aim should be to promote the employment of people with disabilities within the open labour market by combining anti-discrimination and positive action measures to ensure that people with disabilities have equal opportunities. In Work Force’s experience, the inflexible attitude of companies does not help to boost the self-confidence of people with disabilities and that is why the disabled do not dare to take up the challenge.

Position of opposition party and trade unions

The main opposition Socialist party (MSZP) has condemned the constitutional amendment, insisting that the planned measures constituted an ‘aggressive attack’ on 600,000 people currently entitled to early retirement, which includes people retiring on disability grounds. The party’s parliamentary leader, Attila Mesterházy, told a press conference that he had called on the ruling party to withdraw the bill and had written to President Pál Schmitt asking him not to sign the law should it be passed by Parliament.

Trade unions representing Hungary’s law enforcement officials, fire fighters and train drivers have protested against the Government’s plan as such groups of workers are the main victims of the proposal to scrap early retirement.

‘We are clear about the state of the Hungarian economy and are willing to accept some of the changes sought by the government, but we won’t and cannot give up our acquired rights,’ said Peter Kónya, a military officer and leader of the Federation of Law Enforcement and Defence Force Unions (FRDÉSZ).

Tens of thousands of law enforcement personnel gathered in Budapest on 17 June 2011 to protest. In a joint statement, Peter Kónya, Chair of FRDÉSZ, and Kornél Árok, President of the Association of Independent Professional Firefighters (HTFSZ) said: ‘Winning a two-thirds majority in Parliament does not authorise [the ruling parties) to pass laws with a retroactive effect, scrap constitutional rights, dismantle democratic institutions and deprive millions of people of a steady livelihood’. The protesters ended their rally at the offices of President Pál Schmitt to ‘let him know the will of the people’. The President did however sign the law, restricting the early retirement option retroactively.

Engine drivers of the Hungarian railways (MÁV) and drivers of Budapest’s public transport company (BKV) also protested against the Government’s proposal.

Commentary

The previous 10–15 years have seen some initiatives to reform the Hungarian pension system. The ageing population and the fact that most employees become pensioners before retirement age does indeed burden the state pension fund. The Government’s message is clear: the employment rate is low, a lot is being spent to welfare and something has to be done in order to change this situation.

It is questionable, however, whether the new law will actually change the employability of those people redirected to the labour market. It is highly unlikely that a significant number of those people will find a job. The most likely consequence is that they will have to receive other social support such as unemployment benefit, and later local social support. The opinions of some affected trade unions are also understandable because they want to keep and protect their acquired rights. To change and amend these rights, negotiations between social partners are necessary, but have recently been lacking.

Reference

AXA Group (2008), Axa retirement scope 2008 (7.9Mb PDF), Paris.

Máté Komiljovics, Solution4.org Bt

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