An announcement by the Hungarian government on January 1 that it is to slash employer contributions by almost 10% to the state social security system in a bid to reduce black market employment, has sent shock waves through the country's fledgling pensions arena.
Under the ministry of finance decree, companies will now pay only 37.5% to the state coffers as opposed to the previous 44.5%.
And the ruling comes hard on the heels of last November's additional 1% employee taxation to the central budget, which had originally been intended as a top-up for individual second pillar retirement plans.
The move has been met with dismay by a population already unsettled in its pension arrangements, particularly the elderly, with many voicing concern that their current personal pensions are too small to make up such a pensions deficit.
Industrial second pillar funds are also up in arms, concerned at the combined cuts in their pension provision and a lack of trade union support to fight their corner.
Agnes Matisz, consultant at William Mercer in Budapest, says: On the one side some people in Hungary are arguing that this ruling will prompt Hungarians to make more provision for their retirement, but in reality the effect of the legislation has been to scare those who already felt insecure about their pensions and they are now loath to put any money in retirement schemes."
However, Barnabas Horvadh, portfolio manager at ABN-AMRO Asset Management in Budapest, says he is only seeing a slight slowdown in growth of second pillar assets under management so far. "The second pillar pensions boom in Hungary last year which saw between HUF20-30bn (E80-120m) flow into the system from around 1m scheme members was pulled up slightly by last years unexpected 1% tax clawback by the state on contributions. We also felt this was an extremely serious problem. But, with these employer reductions we are seeing minor reactions only, and the projected figure of 2m Hungarians joining second pillar schemes is still on course." Hugh Wheelan"