Hungary Finance Ministry goes back on promise to reform the pension system
The Ministry of Finance has confirmed that there are no plans to reform the pension system and, contrary to initial promises, the government does not support the proposals of independent experts
local daily Népszava reported on Monday after being informed by the ministry.
The delay in reforming the pension system is partly due to the political risks associated with the 2026 elections.
According to András Simonovits, an economist, the government will not accept the loss of popularity that the reforms would entail, especially on the issue of the 13th month pension, which was one of the reasons for the previous political failures.
The Organisation for Economic Cooperation and Development (OECD) also warns that the sustainability of the pension system would require a review of early retirement and the Women40 scheme. (See the OECD's proposals in the tables below.)
Experts warn that without reforms, the current system will further impoverish the elderly, while the average monthly pension is only HUF 230,000.
In 2021, Hungary spent the least on pensions of all but two of the 27 EU countries (Malta and Ireland), occupying the 25th spot in this particular EU ranking, according to Eurostat data.
According to data by the Hungarian Central Statistical Office (KSH), the proportion of people aged 65 and over at risk of poverty or social exclusion was 20.7% in 2022, the relative income poverty rate was 14.5% and the proportion of people living in severe material deprivation was 9.5%.
By 2023, the situation had worsened for complex reasons, with a total of 1.87 million people (19.7% of the total population) at risk of poverty or social exclusion, a risk from which the retired population was not immune.
As part of the Recovery and Resilience Plan (RRP, 2023), the Hungarian government pledged to reform the pension system. The main themes are sustainability and adequacy. The pension plan is to be discussed publicly and put into law by March 2025.
Pension expert András Simonovits had doubts if the Hungarian government has the will and the capacity to work out the pension reform package promised to the EC. And he was right. He proposed a pension reform package which would reduce tensions accumulated in the Hungarian pension system
András Simonovits worked at the Institute of Economics of the Hungarian Academy of Sciences between 1970 and 2023. He has taught at various Hungarian and foreign universities since 1984. He studied the dynamics of shortage economies until 1990 and since 1990 he has been analysing the models and practices of pensions systems.
Before formulating the reform steps, Simonovits stated the objectives of a reform, saying the pension system
- must be sustainable, i.e., its financing should be tolerable;
- should be adequate, i.e., together with other social services, the benefits should ensure an acceptable standard of living for the pensioners;
- should be fair, i.e., the relative burden and the relative benefits of each cohort should be time-invariant.
He outlined simple reforms and complex measures too, as follows:
Simple reforms include
- return to openness;
- rectifying the accrual curve;
- the reestablishment of the contribution base cap;
- fixing progressivity;
- flattening the 13th month benefits.
Complex reforms include
- introducing a flexible (variable) retirement age;
- phasing-out Women40;
- eventually raising the lowest benefits;
- improving the indexation of initial benefits;
- reforming the indexation of benefits in progress and (6) raising the contribution rates or reducing the accrual rate.
You can read the full document here.
The OECD's proposals are summarised in the tables below:
Cover photo (for illustration purposes only): Getty Images
