HUNGARY - Between four and eight of Hungary's 18 mandatory pension funds will survive after the overwhelming majority of second-pillar pension system members bowed to government pressure to opt back into the state system.
But Julianna Bába, head of Stabilitas, the country's pension fund association, told IPE she remained confident a pending Constitutional Court ruling could yet bring a stay of execution for Hungary's 12-year-old mandatory pillar.
"We have no doubt the constitutional court must rule against a discriminatory aspect of the law that requires those who refused to give their money back to the state system to carry on paying into the state pension pillar while not earning an entitlement to a state pension on their retirement," she said.
But Viktor Orbán - prime minister of the populist-conservative government that has in the past used its two-thirds parliamentary majority to clip the constitutional court's wings after it ruled against the government - moved to scotch those hopes yesterday.
"This argument has been settled," he said. "It would be a shame to create the impression that this can be changed. Hungary will have a two-pillar pension system. There's no point in hoping the constitutional court will change the new system. I'm saying this as someone taking part in the drafting of the new constitution."
He said the government's spring election success and the 97% of pension fund members who had chosen "in grown-up fashion" to opt back into the state pillar constituted a mandate that the constitutional court had no right to overrule.
Because the threat of losing all entitlement to a state pension - billed as the "freedom to choose" - made the decision to remain within the mandatory pension pillar a difficult one, such a ruling would require that savers be given another opportunity to decide whether to hand their savings to the state, according to Bába.
During January, just over 100,000 of the second pillar's 2.9m members took the decision to turn up in person at one of a few dozen pension administration offices around the country and declare in writing that they did not wish to return their pension assets to the state and that they were content to forfeit their right to a state pension.
"The government was playing on people's uncertainty and their inclination to do nothing in such a case," Bába said, congratulating those who had remained for their "bravery".
Orbán said the money in the pension funds was necessary to "save the pension system", though the €10bn, which will create a one-off budget surplus in 2011 of 6% of GDP in 2011, compared with the 2.7% deficit projected, will be useful to Orbán's government, which terminated its stand-by loan with the IMF in the early summer after the international lender criticised the government's spending plans.
Regardless of the number of members who remain, the pension funds, which are owned by their members but operated by major financial investors including Hungary's OTP, Germany's AXA and the Dutch insurer Aegon, will also have to deal with harsh caps to the fees they can charge.
Operating costs have been capped at 0.9% of inflowing funds, down from 4.5%, and asset management costs at 0.2% of total assets, down from 0.9%.
Bába said: "It will be difficult to run a very sophisticated investment strategy."