HUNGARY - The Hungarian first pillar requires radical "paradigmatic" reform, according to Lajos Bokros, CEO and professor of economics and public policy at the Central European University in Budapest.
Current proposals include the introduction of parametric reforms such as the increase of the retirement age, and to increase benefits in line with inflation only. Currently the Swiss system is used whereby the increase is based half on inflation and half on the increase in earnings. The reforms are planned to take effect in 2008.
The Hungarian first pillar system is heavily in deficit, with the shortfall equivalent to 2.1% of GDP. Furthermore Bokros noted that with 3.1m Hungarians claiming a pension and only 3.9m active workers contributing to the system, the proposed reforms would be "insufficient."
Speaking today at the annual conference of the European Public Real Estate Association held in the Hungarian capital, the former Hungarian finance minister argued for the adoption of a 'notional defined contribution' (NDC) system of the kind found in Sweden to replace the current pay-as-you-go defined benefit system.
"The advantage of an NDC system would be greater fiscal balance," he told IPE. "In addition the NDC is an instrument which the government would not be able to interfere with it. We must depoliticise pensions; the problem in many transition economies is that the government plays with everything."
He said that "in Hungary the government created a second and third pillar system which work very well, but it didn't reform the first pillar.