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Retirement rules in Hungary: gainers and losers

Author

Listed:
  • Tibor Czegledi

    () (Databank of the Research Centre for Economic and Regional Studies, Hungarian Academy of Sciences)

  • Endre Szabo

    () (Databank of the Research Centre for Economic and Regional Studies, Hungarian Academy of Sciences)

  • Melinda Tir

    () (Databank of the Research Centre for Economic and Regional Studies, Hungarian Academy of Sciences)

  • Andras Simonovits

    () (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and also Mathematical Institute of Budapest University of Technology, Budapest)

Abstract

Though the Hungarian pension system has been suffering from many erroneous rules, in the present paper we confine our attention to the rules of retirement in Hungary since 1990. In every pension system, there exist two rules which determine how the lifetime contribution (which is approximately proportional to the years of contributions) and the retirement age influence the benefit amount, respectively. As a benchmark, we use the system of nonfinancial defined contributions, simulating a mandatory life insurance and life annuity system. More generally, we speak of flexible retirement if adding a year to the contributions or the retirement age strongly increases the retirement benefit, opening the way to the flexible choice of the retirement age. Due to erroneous concepts, flexibility has only functioned in a very imperfect form in Hungary. Before 2011/2012, an exemption rule completed the two foregoing rules: if somebody had above the critical value (35–40) of years of contributions, he/she could use early retirement without significant benefit reduction. Since 2011/2012 two other rules have completed these rules: (a) as an exception, since 2011, rule Females 40 has rewarded any woman who had at least 40 years of rights with a full benefit; (b) as a rigid rule, since 2012, nobody could have retired before reaching the statutory retirement age except for category (a). Taking into account the dependence of monthly benefits on the lifetime average valorized wages, we assess the gainers and losers of the past and the present systems.

Suggested Citation

  • Tibor Czegledi & Endre Szabo & Melinda Tir & Andras Simonovits, 2016. "Retirement rules in Hungary: gainers and losers," IEHAS Discussion Papers 1631, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  • Handle: RePEc:has:discpr:1631
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    References listed on IDEAS

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    1. Christoph Freudenberg & Tamás Berki & Ádám Reiff, 2016. "A Long-Term Evaluation of Recent Hungarian Pension Reforms," MNB Working Papers 2016/2, Magyar Nemzeti Bank (Central Bank of Hungary).
    2. Karoly Fazekas & Julia Varga (ed.), 2015. "The Hungarian Labour Market 2015," The Hungarian Labour Market Yearbooks, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences, number 2015.
    3. Staubli, Stefan & Zweimüller, Josef, 2013. "Does raising the early retirement age increase employment of older workers?," Journal of Public Economics, Elsevier, vol. 108(C), pages 17-32.
    4. Manoli, Dayanand & Weber, Andrea, 2016. "The Effects of the Early Retirement Age on Retirement Decisions," IZA Discussion Papers 10154, Institute for the Study of Labor (IZA).
    5. Chan Sewin & Stevens Ann H, 2004. "How Does Job Loss Affect the Timing of Retirement?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-26, May.
    6. Stock, James H & Wise, David A, 1990. "Pensions, the Option Value of Work, and Retirement," Econometrica, Econometric Society, vol. 58(5), pages 1151-1180, September.
    7. P. Eső & A. Simonovits & J. Tóth, 2011. "Designing benefit rules for flexible retirement: Welfare vs. redistribution," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 61(1), pages 3-32, March.
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    Cited by:

    1. Erik Granseth & Wolfgang Keck & Wolfgang Nagl & Melinda Tir & Andras Simonovits, 2016. "Negative correlation between retirement age and contribution length?," IEHAS Discussion Papers 1633, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

    More about this item

    Keywords

    normal retirement age; early retirement; years of contributions; rights; flexible retirement;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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