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The sustainability of the Hungarian pension system: a reassessment

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Author Info

  • Gábor Orbán

    ()
    (Magyar Nemzeti Bank)

  • Dániel Palotai

    ()
    (Magyar Nemzeti Bank)

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    Abstract

    This paper gives a reassessment of the sustainability of the reformed Hungarian pension system with a special focus on whether the introduction of the fully funded pillar in 1998 has led to any improvement in the sustainability of the pension system. After a brief description of the 1997/1998 reform of the Hungarian pension system, we present results from simulations with a revised pension model. Our results show that 1) the pension system, in its present form, is unsustainable with net implicit public liabilities in the system around 240% of GDP, unless corrective measures are taken. 2) The series of policy measures taken since the 1997/1998 reform account for nearly three-fourths of the net liability implicit in the pension system, reflecting a policy reversal: an alarming tendency of undoing the progress made by the reform in terms of improving the system’s sustainability. 3) The funded pillar can help in lowering net implicit liabilities if the transition costs involved in the reform are financed by budgetary adjustment. 4) The returns recorded so far in the private pension funds fall short of expectations and, on the condition that these low returns persist, the second pillar is projected to provide annuities that do not make up for the reduction in benefits received from the public pillar. This conclusion is valid even if we compare a hypothetical balanced full pay-as-you-go (PAYG) system with a sustainable multi-pillar system.

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    Bibliographic Info

    Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Occasional Papers with number 2005/40.

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    Length: 47 pages
    Date of creation: 2005
    Date of revision:
    Handle: RePEc:mnb:opaper:2005/40

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    Web page: http://www.mnb.hu/
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    Related research

    Keywords: ageing; pension system; social security; fiscal sustainability.;

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    Cited by:
    1. Andras Simonovits, 2009. "Hungarian Pension System and its Reform," IEHAS Discussion Papers 0908, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    2. Impavido, Gregorio & Rocha, Roberto, 2006. "Competition and performance in the Hungarian second pillar," Policy Research Working Paper Series 3876, The World Bank.
    3. Michael Fuchs & Aaron George Grech & Asghar Zaidi, 2006. "Pension Policy in EU25 and its Possible Impact on Elderly Poverty," CASE Papers case116, Centre for Analysis of Social Exclusion, LSE.
    4. Aaron George Grech, 2012. "Evaluating the possible impact of pension reforms on future living standards in Europe," LSE Research Online Documents on Economics 51296, London School of Economics and Political Science, LSE Library.
    5. Grech, Aaron George, 2007. "Pension policy in EU25 and its impact on pension benefits," MPRA Paper 33669, University Library of Munich, Germany.

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