Hungary's pension system has borne the brunt of the fallout in Eastern Europe from the Russian economic crisis, with over 80% of the country's funds reporting severely reduced revenues and capital.

Both the fledgling mandatory second pillar system, which began operating at the start of the year, and the country's private supplementary schemes, have reported huge losses for August and September as the Budapest stock exchange plummeted by 40%, with foreign investors withdrawing capital at the rate of $50m per day.

Although domestic companies have been able to soak up the desertion of Hungarian bonds, the flight of the previous 70% foreign ownership of equities has proved disastrous.

Tamas Szauter, chief executive officer at ABN AMRO Asset Management in Budapest, believes any fund with more than 25% equity investment will have suffered serious automatic capital loss. Only funds without brokerage houses and heavily invested in government bonds will have escaped lightly from the crash," he adds.

The timing of the crisis appears particularly cruel for the 1m members of Hungary's mandatory occupational schemes, where fund contribution assets had been doubling by the month.

Benedek Lorincz, managing director of Budapest based CIAB Securities, which manages around 50 funds with total assets of HF70bn, said:"The crisis has had an enormous impact on us, because expected annual growth for the funds was around 20% and will now almost certainly be at zero."

But, he says the CIAB funds suffered minimal value loss, with only a couple more heavily committed than the 25% equity investment danger level, and is also upbeat about the future.

Gabor Kende, chief investment officer at ING Investment Management, says the short term outlook for funds is still bleak, particularly in light of voluntary schemes losing a substantial amount of their $300m in assets, but that the long term situation may not be too dramatic. "The double edged sword for second pillar schemes is that they may have lost a lot of capital now, but being fairly new the damage is more limited than in the four year old private schemes. However, I don't think new subscribers to pension schemes should be overly worried, because with average GDP growth of 5% and decreasing inflation we have the liquidity and macro-economic fundamentals for good recovery. Despite the crash, Kende says there is no fear of either state or occupational pensions not being paid, adding that the voluntary schemes currently only affect about 100 pensioners."