Pension Problems and Reforms in the Czech Republic, Hungary, Poland and Romania

Pension systems and, as ratios of GDP, pension expenditures show large variation among countries. This variation reflects, above all, demographic factors and differences in the level of insurance protection, the latter tending to increase with the level of development. The focus of this paper is pension developments and reforms in the FOUR transition countries: the Czech Republic, Hungary, Poland and Romania, during the 1990s. In terms of key pension statistics, Poland and Romania are clear outliers not just among the FOUR, but also in Europe. The greater pension expenditures in Hungary and, especially, Poland are in part inherited from the socialist system and in part caused by the more radical restructuring reforms which have been adopted since the collapse of that system in 1988-1990. These greater expenditures have prompted these two countries to start replacing gradually their PAYG-DB system with a three-pillar mixed system, in which private pension funds are intended to become a large, eventually the dominant, component. This chapter gives an account of the main aims and principles of the reform measures which came into force in Hungary in 1998 and in Poland in 1999. Also reported are estimates of the public debt implicit in the obligation of the pre-reform state pension system to pay benefits to current pensioners and to current workers. These estimates are found to be, for Hungary, Poland and the Czech Republic, significantly higher than in main European Union countries.