Hungary suspends payments into second pillar in 'hidden nationalisation'
HUNGARY - Hungary has suspended payments into its second-pillar private pension system in an effort to combat its budget shortfall.
In a speech to businessmen on Tuesday, Viktor Orbán, the country's prime minister, announced a series of revenue-raising measures designed to ensure the country met stringent deficit targets for this year and next after the International Monetary Fund (IMF) withdrew its support.
The measures - which come not long after Mihály Varga, the prime minister's representative in the IMF talks, complained the country was forced by the European Union to introduce pensions - include a freeze on contributions to Hungary's private pension funds, provision for existing contributors to opt back into the state pillar with no penalty, and a range of new windfall taxes on the energy, retail and telecommunications sectors.
Mr Orbán said: "The government pays Ft30bn (€476m) a month into the so-called private - but in fact semi-state - pension system. At a time of crisis, the government cannot continue to do this without endangering the pension system."
The freeze on payments will last until the end of next year.
Hungary introduced a three-pillar pension system in the mid-1990s, under which contributions to private pension funds are channelled through the social security system.
Employees and employers' contributions are paid to the state tax authorities, which has until now allocated a proportion of the transfers to the state pillar and transferred the remainder to the employees' chosen pension insurer.
Though the pension system as a whole incorporates both private and state elements, individual pension funds are privately incorporated entities.
In a statement, Stabilitas, the Hungarian pension fund association, said the move was tantamount to "taking the assets of more than Ft2,700bn held by 3m fund members".
Ilona Juhász, the association's secretary-general, said: "These moves involving the pension funds are a kind of hidden nationalisation reminiscent of the 1950s."
No details of the planned legislation have yet been given, though it is widely assumed that, unless existing members choose to transfer their accumulated savings into the state system in exchange for the promise of a state pension, existing assets will remain in the funds.
However, the country's pension funds are going through a difficult period. In the first half of this year, the funds made a combined loss of Ft643m (€2.4m).
These losses will rise if the funds have to manage their existing assets without any new inflows for the next 14 months.
Though Hungarian funds are owned by their members, the largest bear the branding of major insurers and banks, including Aegon, Axa and OTP, to whom they pay a management fee.
According to the financial daily Napi Gazdaság, these major funds are considering taking legal action against the government.