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The New Hungarian Pension System and its Problems

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Author Info

  • Andras Simonovits

    ()
    (Institute of Economics, Hungarian Academy of Sciences)

Abstract

In January 1, 1998 a new, three-pillar pension system was introduced in Hungary. It will replace about a 1/4 of the existing unfunded public system by a funded private system from 2013. This transition is obligatory for people entering the labor market after June 30, 1998 and optional for others. Meanwhile the public pillar is also reformed. Pensionable age is increasing significantly but smoothly, wage index-ation is replaced by a combined wage-price indexation and the link between earnings and benefits will be rectified between 2009–2013. The official view is that it is this reform package which will make the Hungarian pension system sustainable in the long run and will contribute to the development of capital markets. The critics of the reforms, including the author, underline several remaining and new problems: the public pillar retains its weak points until 2013, the consolidated balance may deteriorate rather than improve under the partial privatization and the welfare of the old population will be relatively lower due to the decreased security.

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Bibliographic Info

Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 9901.

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Length: 30 pages
Date of creation: Jan 1999
Date of revision:
Handle: RePEc:has:discpr:9901

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Keywords: pension reforms; funding; economics in transition;

References

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  1. Martin Feldstein & Andrew Samwick, 1997. "The Economics of Prefunding Social Security and Medicare Benefits," NBER Working Papers 6055, National Bureau of Economic Research, Inc.
  2. Martin Feldstein & Andrew Samwick, 1996. "The Transition Path in Privatizing Social Security," NBER Working Papers 5761, National Bureau of Economic Research, Inc.
  3. Friedman, Benjamin M & Warshawsky, Mark J, 1990. "The Cost of Annuities: Implications for Saving Behavior and Bequests," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 135-54, February.
  4. Laurence J. Kotlikoff, 1995. "Privatization of Social Security: How It Works and Why It Matters," NBER Working Papers 5330, National Bureau of Economic Research, Inc.
  5. Benjamin M. Friedman & Mark Warshawsky, 1985. "The Cost of Annuities: Implications for Saving Behavior and Bequests," NBER Working Papers 1682, National Bureau of Economic Research, Inc.
  6. Palacios, Robert & Rocha, Roberto, 1998. "The Hungarian pension system in transition," Social Protection Discussion Papers 20048, The World Bank.
  7. Kornai, Janos, 1997. "The Reform of the Welfare State and Public Opinion," American Economic Review, American Economic Association, vol. 87(2), pages 339-43, May.
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Cited by:
  1. Peter Eso & Andras Siminovits, 2002. "Designing Optimal Benefit Rules for Flexible Retirement," Discussion Papers 1353, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Katharina Müller, 2000. "Pension privatization in Latin America," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(4), pages 507-518.

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