The Hungarian pension system in transition

Abstract

After discussing the evolution of the policy dialogue in Hungary, this report broadly describes the reform of the pay-as-you-go public pension system and its partial privatization as legislated in July 1997. Through a combination of a debt and tax financed transition, the first partial pension privatization in Central Europe is shown to generate increased national savings while placing the pension system on a more sustainable course. The potential positive impact on savings was diminished by politically-motivated compromises. Outstanding issues include problematic features of the second pillar and the reemergence of pay-as-you-go deficits in the long run. This suggests that further reforms, such as raising the retirement age beyond 62, will eventually be required.

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