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The sustainability of the Hungarian pension system: a reassessment

Author

Listed:
  • Gábor Orbán

    () (Magyar Nemzeti Bank)

  • Dániel Palotai

    () (Magyar Nemzeti Bank)

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.

Suggested Citation

  • Gábor Orbán & Dániel Palotai, 2005. "The sustainability of the Hungarian pension system: a reassessment," MNB Occasional Papers 2005/40, Magyar Nemzeti Bank (Central Bank of Hungary).
  • Handle: RePEc:mnb:opaper:2005/40
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    File URL: http://www.mnb.hu/letoltes/op-40.pdf
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    Citations

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    Cited by:

    1. Grech, Aaron George, 2007. "Pension policy in EU25 and its impact on pension benefits," MPRA Paper 33669, University Library of Munich, Germany.
    2. Zaidi, Asghar & Grech, Aaron George & Fuchs, Michael, 2006. "Pension policy in EU25 and its possible impact on elderly poverty," LSE Research Online Documents on Economics 6225, London School of Economics and Political Science, LSE Library.
    3. András Simonovits, 2014. "Design Errors in Public Pension Systems: The Case of Hungary," IEHAS Discussion Papers 1414, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    4. Grech, Aaron George, 2012. "Evaluating the possible impact of pension reforms on future living standards in Europe," MPRA Paper 39851, University Library of Munich, Germany.
    5. Grech, Aaron George, 2014. "Evaluating the possible impact of pension reforms on elderly poverty in Europe," MPRA Paper 57639, University Library of Munich, Germany.
    6. Impavido, Gregorio & Rocha, Roberto, 2006. "Competition and performance in the Hungarian second pillar," Policy Research Working Paper Series 3876, The World Bank.
    7. 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.

    More about this item

    Keywords

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

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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