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Hungarian government accuses pension funds of 'fraudulent practices'

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  • Hungarian government accuses pension funds of 'fraudulent practices'

EUROPE - Hungary's government has accused the country's pension funds of adopting fraudulent practices prior to the funded pension system's abolition last year.

Gabriella Selmeczi, the government's 'pension protection' commissioner, said investigators had concluded that funds had failed to generate sufficient yield over their 14 years of operation.

Selmeczi, a long-serving MP for the governing populist conservative Fidesz party, said investigators had identified "several billion forints" in missing yields.

IPE attempted to reach several pension funds for comment, but calls had not been returned at press time.

It is unclear whether the accusations will result in formal charges being brought. Selmeczi, who is also Fidesz's senior press spokeswoman, said last year when the investigation into the pension funds was announced that the pension funds had "gambled away people's pensions on the stock market".

The charges are the latest in a saga that has seen all but 3% of the country's €10bn funded pension pillar liquidated and transferred back to the state Treasury.

Hungary's government first targeted pension funds in early 2010, shortly after breaking with an IMF-led support programme.

Faced with a funding gap, Gyorgy Matolcsy, the national economy ministry, said individuals who refused to opt back - together with their assets - into the state pension pillar, would be opting out of the "system of solidarity" on which future pension payments depended, and would therefore lose their entitlement to a state pension.

Faced with what many regarded as blackmail, the vast majority of members in the mandatory second pillar system did so, handing the government a one-time €10bn windfall.

Before Christmas, the government announced that, in future, the contributions even of those 100,000 members who had opted to remain within the second pillar would be paid directly into the state treasury, consigning the remaining second pillar funds to a slow decline, deprived of any further income.

Stabilitas, the pension fund association, said the remaining funds might be able to survive if members agree to make voluntary contributions.

If they do not, members will have no means of accessing their savings, which will automatically be passed to the state Treasury if the fund is forced to shut down.

Although the Constitutional Court had been expected to rule that the original move against the second pillar was unconstitutional, it ducked its final opportunity to do so at the end of 2011.

Under a new constitution, which came into effect on 1 January, the constitutional court no longer has the right to rule on matters affecting state finances.

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