Introduction to the Hungarian pension system - IAA Council and Committee Meetings Social Security Committee Budapest, Hungary 19 April 2017
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Central Administration of
National Pension Insurance
Introduction to the Hungarian pension system
IAA Council and Committee Meetings
Social Security Committee
Budapest, Hungary 19 April 2017Agenda
Foreword
You are here: Hungary
History – brief
The big picture
The 2nd pillar: A short outlook to the supplementary pension vehicles
2nd pillar: voluntary schemes
Our Voluntary Pension Funds
Institutions for Occupational Retirement Provision, the EU IORPs
Pension Insurance
Pension Savings Accounts
1st pillar: Social Security Pensions
The present social security pension fund
Benefits of the 1st pillar: social security pension
Demography: Ageing society
Rules and parameters
Year 2015 Budget of the Social Security Pension Fund
Forecasting pensions
Budget estimates forecasting
EU requirements
CANPI Microsimulation model
Data sources: CANPI, CSO, Hungarian National BankCentral Administration of
National Pension Insurance
Introduction to the Hungarian pension system
FOREWORDYou are here: Hungary
700 50
Area: 93 000 km2 45
600
40
Population: 9.84 million 500 35
400 30
25
300 20
200 15
10
100
5
0 0
Area 1000km2 Population, million
Economic indicators Currency: Hungarian Forint
115,0 25 000,0 30 000,0
Per capita GDP on PPP
110,0 25 000,0
20 000,0
105,0 20 000,0
15 000,0
USD
EUR
100,0 15 000,0
10 000,0
95,0 10 000,0
90,0 5 000,0 5 000,0
85,0 0,0 0,0
GDP growth Inflation EUR USD
*FX rates: 1 EUR : HUF 310 and 1 USD : HUF 290, https://www.oanda.com/currency/converter/History – brief
Antecedent pension schemes – ever since the early XIXth centaury
First regulation: Act XLVII of 1868 on mutual pensions
Consolidation of sectoral schemes into one piece of legislation: Act XL of 1928 – on funded basis
WWII followed by hyper inflation: financing crisis with benefit improvements
Consolidation of the scheme as PAYG – Presidential Decree 36. of 1950
Our way of baby-boom: 1953
Years of extension of rights and contribution base: sectoral mandatory insurance for private
employees
Consolidation of the legislation – Act II of 1975
The turn of 1990s: Return to market economy – and to inflation and loss of contribution base –
and
Personal income taxation and tax incentives and
Re-Introduction of voluntary private pensions – Act XCVI of 1993
Consolidation of the pension system: fiscal and legal and structural reforms of 1995 – 1997
Joining of the EU – 2004
Consolidation of the pension system: fiscal and legal and structural reforms of 2010 - 2012The big picture
Structure
The Hungarian pension system consists of one mandatory pillar, the social security
pension system, and other forms of funded voluntary pension institutions as second
pillar:
1st pillar: mandatory public pension: universal earnings-related (defined-benefit)
pay-as-you-go system, combined with a minimum pension,
2nd pillar: private voluntary defined contribution pension funds, pension
insurance and pension savings accounts with banks.Central Administration of
National Pension Insurance
Introduction to the Hungarian pension system
THE 2ND PILLARA short outlook to the supplementary pension vehicles 2nd pillar: voluntary schemes Voluntary Pension Funds and Voluntary Privately Managed Pension Funds Occupational Pension Institutions (under EU IORP Directive) Pension Insurance Retirement Saving Account
Our Voluntary Pension Funds The voluntary pension fund is a funded defined contribution (DC) pension scheme established by its members Membership: Individuals, any person who is over the age of 16, agrees to abide by the provisions of the bylaws and agrees to pay membership dues shall be eligible for fund membership. So it is not by definition „occupational”. Then what it is: mutual association Contributions: Varying per individual, a minimum amount of contribution is mandatory. Employers may undertake to partly or entirely assume these contributions under the title of employer's contribution. Benefits @ retirement age: Programmed withdrawal fixed or life-long, fixed term annuity, lump sum payment, a combination of the two, according to the bylaws. Other cash withdrawal – but not as tax sheltered benefit – possible after 10 years membership. Tax allowance: Tax allowances are applied to incentive the individual savings and contributions. The members’ personal income tax can be reduced by 20% of the annual contribution (maximum 150,000 HUF) and this amount should be added to the members’ account. Statistics The number of voluntary pension funds and members has seen a dynamic growth and by 1995 there had already been around 250 funds in operation. This number has fallen to 40 due to the concentration/consolidation process. However, the number of members – who has voluntary pension fund savings – is still 1.145 million, that is about 33% of the total number of insured people. Their assets have exceeded HUF 1 216 billion.
Institutions for Occupational Retirement Provision
These are the EU-styled IORPs
Two instances
– one „home”: operating locally
– one „host”: a real cross-border
Note: 18 of the 40 VPFs are de facto occupational pension fundsPension Insurance
Just recently, in 2015, the Tax Law defined the minimal necessary features of pension insurance
policies to be eligible for tax allowances, and the MNB, the financial supervisor, issued guidelines
for the insurers to clarify the professional standards of this line of business. The main message
was to differentiate between the goals of unit linked life insurances (savings products) and long
term products aiming to pay annuities at retirement.
However, of this short history we cannot foresee the resulting annuities.
Tax sheltered pension insurance policies 165 921
of this: eligible to the individual’s allowance 164 378
of this: unit linked life insurance policies 113 564
Other pension insurance policies 3 513
Other annuity insurance policies 4 000
Source: MNB (Hungarian National Bank)Pension Savings Accounts
The Pension Savings Account is also a tax sheltered form of old age self-support. The accounts
are in fact special purpose securities accounts, managed by banks, with limited option to early
withdrawal (taxed at penalty rate). It is advisable for the use of high earner, financially educated
clients.
No. of PSAs: 165 007
PSA securities on market value (million) HUF EUR
HUF denominated 471 390 1 597
Foreign currency 7 697 26
Total 479 087 1 623
Source: MNB, 2013.06.30
The amount of savings have increased, the number of accounts decreased by about 10% since 2013.Central Administration of
National Pension Insurance
Introduction to the Hungarian pension system
SOCIAL SECURITY PENSIONSThe present social security pension fund
Stabilizing the sustainability of the Pension Insurance Fund
The objective of the 2010 reforms was to establish the stability of the clear pension system.
From 2012 and onwards the formerly early retirement pensions are not paid as pensions, and a
pension can only be awarded after reaching the normal retirement age.
The budget of the Pension Insurance Fund has become balanced for pensions now for years.
In the following we overview
Benefits and benefit statistics
Demography
Rules and parameters
Budgeting
ForecastingBenefits of the 1st pillar: social security pension
Pension benefits covered by this pillar:
– old age pension benefit
– survivors’ pension benefit
– pension for women with 40 service years
Old age pensions
[detailed on following slides]
Survivors’ benefits
Survivors’ benefits are calculated on the basis of the pension that the deceased person was or would have
been entitled to. The two types of survivors’ benefits are widows’ pension for the spouse and orphans’ benefit
for the children of the deceased person.
Pension for women with 40 service years
This is the only early pension option, available for those women, regardless of age, who has gained at least 40
years eligibility period. Eligibility period means any period gained with gainful activity (work) or benefits
connected to child raising or nursing fee. At least 32 years of gainful activity is needed besides these periods
due to child raising; or 30 years of gainful activity in case of nursing fee. Eligibility period is decreased by 1 year
after every child raised in the household for women raising 5 or more children, altogether maximum 7 years
this case. In case of these pensions, women are entitled for full pension benefits, benefits are not reduced of
early retiring.Other relevant benefits Disability benefits The insurance of people with changed working capacity (or permanent health conditions) has been categorized as health insurance instead of pensions, but the payments are made by the pension administration. As of 1 January 2012 benefits for persons in receipt of disability pension below retirement age are transformed into disability or rehabilitation- benefits financed by the Health Insurance Fund; (the benefits for persons in receipt of disability pension above retirement age are transformed into old-age pension). Disability provisions are calculated similarly to old age benefits, but higher accrual rates are used at age groups where the length of service cannot be long enough to ensure a decent benefit level. There exist three disability groups, according to the level of disability. The amount of disability provisions for fully incapacitated people is higher by 5 or 10 per cent (depending on whether the person can care for himself or not) than that for those not fully disabled. Old-age social allowance (social net) Those who have reached the standard retirement age but are not eligible for a minimum level of social security pension or private pension and have no other source of sufficient income can apply for a means-tested old-age social allowance. This allowance is financed from general budget revenues and forms part of the social assistance system.
Benefit statistics
Average
Number Average benefit Total Total
Benefits benefit
(person) (HUF/person) (HUF) (EUR)
(EUR/person)
Old-age pensions 2 022 905 118 439 239 590 845 295 385 777 892 000
Pension for women with 40 years of eligibility
122 253 117 926 14 416 807 278 383 46 808 000
period
Widow(er)s' and parental pensions 92 035 68 740 6 326 485 900 223 20 541 000
Orphans' allowance 75 166 38 223 2 873 070 018 124 9 328 000
Pensions total 2 190 106 113 597 248 789 471 282 369 807 758 000
Benefits under retirement age (pre-reform) 81 012 152 810 12 379 443 720 496 40 193 000
Benefits for persons with changed working capacity
404 880 67 759 27 434 263 920 220 89 072 000
(pre-reform)
Work-accident annuity 8 512 26 668 226 998 016 87 737 000
Disability annuity 32 528 34 034 1 107 057 952 111 3 594 000
Spouse supplements 5 253 15 420 81 001 260 50 263 000
Agricultural co-operative annuities 2 419 82 108 198 619 252 267 645 000
Other allowances 2 331 46 167 107 615 277 150 349 000
Benefits total 2 727 041 106 462 290 326 238 942 346 942 618 000Demography: Ageing society Active insured ratio and Pensioners coverage Life expectancy increase at selected ages
000%
010%
020%
030%
040%
050%
060%
070%
080%
090%
100%
Active insured ratio
2015
2001
korév / age
0
5
100-X
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
100000,0
90000,0
80000,0
70000,0
60000,0
50000,0
40000,0
30000,0
20000,0
10000,0
,0
10000,0
fő / person
20000,0
Pensioners coverage
30000,0
40000,0
50000,0
60000,0
70000,0
80000,0
90000,0
100000,0Life expectancy increase
20,00
18,00
16,00
14,00
Life expectancy
12,00
10,00
8,00
@60
6,00
@62
4,00
@65
2,00
,00
Calendar yearRules and parameters Benefit calculation model The amount of social security pension benefits depends on: • the total number of service years and • the average of wages That is traditional DB. Service years and Pensionable earnings; NRA Calculation of average salary Pension formula New pensions and Indexation of benefits in payment Budget of the Social Security Pension Fund
Service years and Pensionable earnings; NRA Service period is counted in days covered by contribution payment for all years of working During the history of the social security there was a convergence between tax base and contribution base (pensionable earnings) However, there have always been certain activities approved – and nowdays paid for – by the state to earn service period Service period lasts until retirement. An increase of Normal Retirement Age scheduled 1950 62 2012 1951 62 2013 1952 62,5 2014. HII - 2015. HI 1953 63 2016 1954 63,5 2017. HII - 2018. HI 1955 64 2019 1956 64,5 2020. HII - 2021. HI 1957 65 2022 1958 65 2023 … … …
Social security pensions liability accrual data 2015
Average
Total number of Average number Average number Average age of the
pensionable
Type of entitlement applied to classification insured of insured of service group
earnings
(person) (person/day) days(day) (year)
(HUF/month)
Persons insured according to general rules
- employees 3 288 126 2 553 131 283 219 413 40
- public service 679 775 653 291 351 273 187 42
- self employed 220 395 203 503 337 164 171 50
- cooperative sector 5 764 3 758 238 133 400 37
- other 192 216 128 651 244 190 100 35
Special income insured groups
- by-work 6 326 5 744 331 102 260 31
- primary producers 53 793 50 846 345 61 118 45
- full-time small taxpayer 88 087 77 028 319 109 545 41
- rehabilitation allowance 4 961 4 123 303 30 651 43
Entitlements based on acknowledged non-gainful
activity
- child-care subsidy 151 410 134 409 324 66 794 30
- child-care allowance 24 285 23 438 352 120 794 33
- child-care benefit 30 461 28 285 339 44 864 36
- nursing allowance 60 912 53 102 318 46 781 46
- other, non-gainful activities 221 695 153 628 253 110 117 42
Total insured 5 028 206 4 072 938 296 207 218 40Calculation of the average base salary
Average is calculated from annual gross salaries earned since 1988*, with cap until 2012, and covered days
during the calculation years
From gross annual net salary with tax allowances calculated according to actual rules applicable year-by-year
Valorization : increase of past earnings to PV by official rate [of wage index] up to date of retirement–2 years
30,00
25,00
20,00
15,00
10,00
5,00
0,00
1985 1990 1995 2000 2005 2010 2015 2020
Appreciation factor
Average: calculated from valorized net annual salaries weighted by the covered days during the year
Base of pension: average salary proportionally decreased by a three-bracket degressive* scale:
resulting in redistribution and improved sustainability
Pensionable part Average income in the Reduction rate of
Average monthly income of income in the Number of Proportion (%) average income in
interval
(HUF) interval (%) the interval (%)
average income in the interval before after
0 - 372 001 100 0,00
372 001 - 421 000 90 358 0,57 494 636 257 121 0,52
421 001 + 80 188 0,30 494 636 1 959 570 3,96Calculation of Pensions
Pension = (Reduced average wage) ∙ (Service table%)
Service table
110,0
100,0
90,0
80,0
70,0
60,0
50,0 Benefit %
40,0
30,0
20,0
0 10 20 30 40 50 60
Service years
Working after NRA: If someone retires after the standard retirement age and earns further service periods,
he/she will be entitled to a bonus of 0.5 per cent of the pension benefit for each additional 30 day periods, up
to 100%.
Working as pensioner: If someone retires but work, 0.5 per cent of the new income will be added to the
pension.
Minimum amount of pension: The minimum amount of pension (HUF 28 500/month,New benefit statistics 2015
Average service period at Average amount of new
New pensioners Average age at retirement
Type of benefit retirement benefits (HUF/month)
male female total male female total male female total male female total
Old-age pension 18 876 39 840 58 716 62,8 59,9 60,8 37,2 38,2 37,9 122 209 110 111 113 962
Old-age pensions above the
18 876 11 316 30 192 62,8 62,9 62,8 37,2 31,0 34,9 122 209 85 200 108 529
retirement age
Womens 40 pensions - 28 524 28 524 58,7 58,7 - 41,0 41,0 - 119 506 119 506
Benefits under retirement age 2 393 1 147 3 540 60,9 61,8 61,2 40,0 35,7 39,3 146 230 120 436 138 211
Total of Old-age and old-age type
21 269 40 987 62 256 62,6 60,0 60,9 37,4 38,2 38,0 124 983 110 387 115 342
pensions
Widow(er)s' and parental pension 11 624 36 423 48 047 70,4 67,0 67,8 50 854 64 717 61 364
Orphans' allowance 2 540 2 491 5 031 13,9 14,2 14,1 29 557 29 204 29 382
Work-accident annuity 194 85 279 50,3 50,5 50,3 21 801 12 651 18 942
Disability annuity 408 261 669 20,2 20,7 20,4 33 930 33 930 33 930
Other age-related benefits 126 167 293 73,3 73,7 73,5 - - - 85 119 55 005 69 876
Other benefits 21 - 21 52,9 - 52,9 - - -
Benefits total 36 182 80 414 116 596 61,2 61,6 61,5 92 103 86 465 88 203
of which: Pensions total 33 040 78 754 111 794 61,7 61,7 61,7 89 272 86 270 87 151Indexation of pensions: price inflation since 2012
Consumer and
Percentage of the first Percentage of further Total of pension Effect of 13th month pension Changes of pensions in Changes of earnings in real Changes in relative position
Year Pensioners' price index
annual pension indexation pension indexation indexations - in and out real value value of pensions
(2002 and on)
1992 13,0 6,5 20,0 - 23,0 -2,4 -1,4 -1,1
1993 10,0 4,9 18,0 - 22,5 -3,7 -3,9 0,3
1994 10,0 8,0 24,8 - 18,8 5,1 7,2 -2,0
1995 11,0 4,0 15,4 - 28,2 -10,0 -12,2 2,5
1996 12,0 0,5 12,6 - 23,6 -8,9 -5,0 -4,1
1997 19,5 - 19,5 - 18,3 1,0 4,9 -3,7
1998 19,0 2,2 21,6 - 14,3 6,4 3,6 2,7
1999 14,2 - 14,2 - 10,0 3,8 2,5 1,3
2000 8,0 2,6 10,8 - 9,8 0,9 1,5 -0,5
2001 10,3 5,1 15,9 - 9,2 6,1 6,4 -0,3
2002 9,7 5,5 15,8 - 5,3 10,0 13,6 -3,1
2003 8,4 2,2 10,8 2,1 4,6 8,6 9,2 -0,5
2004 6,3 1,0 7,4 2,0 7,3 3,3 -1,1 4,4
2005 6,3 1,0 7,4 2,0 3,9 6,3 6,3 0,0
2006 4,3 1,2 5,6 2,0 5,0 3,0 3,6 -0,5
2007 4,0 2,4 6,5 - 10,7 -2,2 -4,6 2,6
2008 5,0 2,2 7,3 - 6,9 1,8 0,8 1,0
2009 3,1 - 3,1 -4,8 4,9 -6,4 -2,3 -4,2
2010 4,1 0,6 4,7 -3,0 4,5 -1,9 1,8 -3,6
2011 3,8 0,5 4,3 - 4,4 0,0 2,4 -2,4
2012 4,2 1,6 5,9 - 5,7 0,2 -3,4 3,7
2013 5,2 - 5,2 - 1,5 3,7 3,1 0,5
2014 2,4 - 2,4 - -0,6 3,1 3,2 -0,1
2015 1,8 - 1,8 - 0,4 1,4 4,3 -2,7Year 2015 Budget of the Social Security Pension Fund
(million HUF)
Revenues
Revenues serving as coverage of pension insurance benefits 3 080 875,9
Employers' Social contribution tax paid to the Pension Insurance Fund 2 087 116,5
Pension contribution paid by the insured 964 747,6
Other dues and contributions 14 022,5
Contributions paid on the basis of agreements 895,5
Dues of Simplified Employee Pension Plan (SEP) 13 127,0
Default charges, fines 10 026,6
Other revenues relating to pension insurance activities 4 962,7
Asset management 8,6
Pension insurance institutions income 3 375,7
TOTAL REVENUES OF THE PENSION INSURANCE FUND 3 084 260,2
Expenditures
Pension insurance benefit expenditures 2 992 973,9
Pensions 2 987 724,3
Old-age pension 2 431 296,7
Survivors' pension 373 163,8
Orphans' allowances 34 517,4
Widow(er)s' benefits 338 646,4
Lump-sum equity payments 521,5
Old-age pension for women with 40 years of eligibility period 182 742,3
Expenditures of pension insurance 5 249,6
Postal charges 4 157,8
Other expenditures 1 091,8
Other payments 74 848,0
State budget revenues 74 848,0
Budgetary institutions of Pension Insurance 11 878,2
TOTAL EXPENDITURES OF THE PENSION INSURANCE FUND 3 079 700,1
BALANCE 4 560,1Forecasting pensions Budget estimates forecasting EU requirements CANPI Microsimulation model
Forecasting social security pensions
Budget estimates
– Budget prepared by the ministry responsible for the budget in agreement with the
CANPI
– Short term forecasting: until end of year (monitoring)
– Medium and long term: required by the Law on Public Finances.
There has been times when an automatic balancing mechanism – a trigger on deficit –
was built in to maintain long term balance.
Now: only illustration of the effect of demographic changes is required by law.
Fulfilling EU reporting requirements
– Ageing Report - Economic and budgetary projections for the 28 EU Member States
Public finances effect of ageing:
Pensions, Health care, Long term care, Education, and Unemployment
– ESAC 2010 National Accounts supplementary tables – prepared by the Central Bank,
using the Freiburg modelCANPI Microsimulation model
The MIDAS_HU microsimulation model was developed in collaboration with the Belgian Federal Planning Bureau. These models
use sample databases of hundreds of thousands of individual socio-economic arranged as household data to simulate impacts of
future changes.
MIDAS_HU is a dynamic microsimulation model:
– dynamic ageing
– cross-sectional in terms of the sequence of modelling individuals and periods
– uses discrete time (in a breakdown by years)
– modelling the entire population
– closed model in terms of changes in the population
https://mikroszimulacio.onyf.hu/en/Central Administration of
National Pension Insurance
Introduction to the Hungarian pension system
DATA SOURCESData Sources CANPI Statistical Yearbook 2015 and electronic annex https://www.onyf.hu/m/pdf/Statisztika/ONYF_Statisztikai_Eevkoenyv_201 5_nyomdai.pdf https://www.onyf.hu/m/pdf/Statisztika/ONYF_Statisztikai_Eevkoenyv_201 5_Elektronikus_melleeklet.pdf CSO Statistical Database http://www.ksh.hu/stadat Hungarian National Bank http://www.mnb.hu/en/supervision/time-series
Central Administration of
National Pension Insurance
Thank you for your attention!
Tibor Párniczky
parniczky.tibor@gmail.comYou can also read
