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No individual accounts in state pension fund

August 3rd, 2012

A left-wing and a centrist commentator accuse the government of not fulfilling its promise to introduce individual accounts into the state pension system. The promise was made two years ago, at the time of what critics called the factual nationalization of the compulsory private pension savings.

Világgazdaság reported that the government is not planning further reforms in the public pension scheme. The Ministry of Human Resources in a brief press release stated that under the current system it is possible to calculate prospective pensions for every individual. According to the opposition parties, the announcement effectively means that the government will not introduce a system of private accounts, which would make future pensions strictly determined by individual contributions, and inheritable. Until 2010, earners contributed one quarter of their pension savings to the private funds and three quarters to the public pension fund. At the time the government argued that most accounts yielded less than the public pension system. When people were encouraged to transfer their private savings to the state fund, Fidesz luminaries, including PM Viktor Orbán promised that their savings transferred to the state pension scheme would be secured by placing them in private accounts.

We gave up the hope that private accounts will ever be introduced long ago,” Népszabadság writes in a front page editorial. But the left-wing daily says it would not feel any safer, even if the government did work out a scheme according to which pensions would be calculated on the basis of individual contributions; the government cannot be trusted to keep any promise or engagement, the author concludes.

Véleményvezér, a conservative blog site which is increasingly critical of the government, publishes a furious diatribe against what it calls the “rip off of the mandatory private pension funds.” It accuses the government of having lured people back to the state pension plan by making false promises, in order to fill the gaps in the budget, which were created by the government’s stubborn opposition to reaching an agreement with the IMF.

In 2010, the European Commission rejected a request by the government to deduct the annual compulsory private pension savings from the public deficit, leading to a cabinet decision to redirect those savings to the public pension fund, which immediately reduced the deficit. Most of the private savings fund was used to cut the public debt.

Véleményvezér, however, would have felt safer if that money was redirected to private funds, and contends that the government has now openly admitted that in 2010 it robbed Hungarians of their savings.