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Central Bank Suggests Major Changes to Hungary’s Pension System

Hungary Today 2022.05.23.

The Central Bank of Hungary (NBH) would reform Hungary’s pension scheme, according to its recently-published stabilization program. The main points of the manifesto include reform of the retirement age, post-retirement employment, and the recognition of having children.

  • The Central Bank would encourage people to work beyond retirement age by increasing their pension bonus, arguing that in Hungary, the number of retired people who continue to work after reaching retirement age without claiming a pension is low, one reason for that being the inadequate incentive system.
  • NBH would also link retirement age to life expectancy. This would likely mean that the age limit would be raised one way or another, as life expectancy is slowly but gradually increasing.
  • The pension calculation method should also be reviewed, NBH says, arguing that at the moment, initial pension is very much dependent on wage growth in the last few years. The study suggests that a review of valorization could make starting pension levels more predictable.
  • The Central Bank would also recognize having children in retirement, stressing the importance of a demographic turnaround, arguing that the population has fallen by 200,000 in the last decade, and that without a demographic turnaround, a further decline of more than 400,000 is expected by 2030. The exact methods of this are yet to be worked out, but NBH describes a number of ways to do that.
  • In order to ensure that all the children wanted could ultimately be born in Hungary, they propose to expand the family support system, too.
  • NBH also writes that recognition of having children would also be important to make the pension system more just, pointing out that women raising two children receive an initial pension 15% lower than their childless counterparts, while women raising three children receive a 20% lower initial pension.

The paper is part of the Central Bank’s two-year “competitiveness program” to restore the economy’s “dramatically deteriorated” balance. According to governor György Matolcsy, the new government would need to “find a formula for success” in a “decade of strong challenges,” adding that the budget balance had toppled and the deficit was rising, which aggravated by high inflation, could cause the country to “lose the next years” and compromise efforts aimed at closing the gap with other countries.

featured image illustration via Tibor Illyés/MTI

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