Reforms for Stability and Sustainable Growth: An OECD Perspective on Hungary (Chapter 4 - Pension Reform: Providing Old-Age Income Security in the Face of Population Ageing)
This chapter reviews the challenges faced by the Hungarian pension system. It presents recommendations for reforms to improve fiscal and social sustainability and to strengthen the payout phase of mandatory private defined contribution (DC) pensions. Comparison with the pension-policy experience of other OECD countries reveals shortcomings in Hungary with respect to incentives for early retirement and low pension coverage of the working age population. Moreover, Hungary lacks appropriate legislation and instruments to convert retirement savings in mandatory DC plans into a stream of income at retirement. Hungary is forecast to experience one of the largest increases in public pension spending over the next 50 years, which raises serious concerns about the financial sustainability of its pension system. The public pension system exhibits replacement rates that are the same for all workers with the same career pattern, which implies virtually no redistribution from rich to poor in the system. This contrasts with the majority of OECD countries, which have systems with higher replacement rates for lower-income workers. By redistributing income, this can reduce the risk of old-age poverty while containing total public spending on old-age incomes.
Long abstract
