Hungary plans to launch a new retirement bond to complement already available retirement savings programmes on the market, such as private pension funds, Finance Minister Mihály Varga confirmed in an interview with Reuters on Wednesday.
Varga has revealed some new details about the new retirement bond:
the new, long-term bonds would mature when their owners reach retirement age;
they would either be paid in a lump sum with interest or in monthly instalments.
the retirement bond would be priced "similarly" to the already available baby bonds, which carry a 3% premium over inflation;
the premium could vary depending on the age of bond buyers;
the new bond would be aimed at retail buyers, not institutional investors.
Making the premium varying according to the age of the bond buyers could mean two things. Firstly, the cabinet could decide that the older the bond buyer is the lower the premium will be. This would urge people to think about saving for retirement at the earliest age possible. This direction would harmonise with the strategy of private pension funds and pension insurances.
Secondly, the cabinet could decide that the older the bond buyer is the higher the premium will be. This way it would ensure the bond holders to achieve a meaningful premium within a shorter period, and demand for such products tends to surge before retirement.
From the aspect of the state, the cheaper solution would obviously be the latter. In the former case, the payoout to long-time bond holders would be substantial at maturity due the accumulated interests.
It is also unclear whether the 20% tax break would be applicable also on the retirement bond or not, as it is in the case of retirement savings. It is possible that this would be omitted and “replaced" by a higher guaranteed return.
2019 growth to exceed 4.0%, EU fund inflows expected
Varga also said Hungary's economy is on track to grow by over 4% next year despite a "more difficult" period ahead for the European economy,
Some analysts say the Hungarian economy is overly reliant on output by major German carmakers and growth will be negatively affected by falling EU car sales. Varga noted, however, that the economy has not yet felt any direct impact of a possible slowdown in car demand, adding that the 6-7% contraction recorded recently “is not due to weaker demand but new regulations issued by the EU."
He said Hungary, which relies heavily on EU funds for public sector investments, was expecting further reimbursements from Brussels for invoices filed so far.
The minister reminded that the situation is similar to last year when Hungary received reimbursements for invoices issued in early December. Varga said Hungary had pre-financed over HUF 1.5 trillion worth of spending, of which only some HUF 600 billion have been reimbursed so far.
"Based on the current discussions, I am optimistic and expect that these funds will arrive by the end of the year."
Euro or dollar bond issuances unlikely
Varga said Hungary still aimed to lower the share of foreign currency debt in its total debt stock further, as well as curbing the share of foreign investors holding Hungarian government debt.
"From that regard, it is not in our interests to issue either a euro or a dollar bond already at the start of the year," he said.
He added however that Budapest was in continuous contact with Chinese partners, where it issued Panda bonds in July.
"And we have also restored the Japanese connection linked to the previous issuances. Our issuance permits would have expired, but we have decided to keep them alive."
Prime Minister Viktor Orbán has also said recently that if Hungary were to issue additional FX bonds, it would be definitely denominated in an eastern currency, probably in yuan.
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