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Retirement accounts – the price of a hasty promise

April 9th, 2013

A left-wing paper and an independent liberal commentator both excoriate the government for going back on its promise to create individual retirement accounts for those citizens who transferred their compulsory retirement savings to the national social security system.

In 2010 the government offered a choice to citizens: to transfer their savings to the National Pension Insurance Fund, or to keep their retirement saving accounts with private banks – but in the latter case, they would not benefit any longer  from the pension contributions paid by their employers into the public fund. (Only a quarter of contributions were directed to the private funds). That condition was later abandoned, but by that time most account holders had opted out of the private funds. The government used half of those savings to reduce public debt, and another part to buy shares in MOL (Hungary’s oil multinational) and (most recently) the gas storage facilities owned by Eon, a German utility provider. Another reason for the move was that it reduced the public deficit by over 300 billion HUF annually, since the equivalent of the payments to the private funds had to be transferred by the budget into the public fund, to finance current pension expenditures. At the time, the government promised that a record of the transferred pension savings would be kept on individual accounts – a very difficult promise to keep, as experts commented at the time, as it would have required individual accounts with details kept of all contributions paid by all customers, which would have been incompatible with the logic of the public (pay as you go) system. Thus this was widely regarded as a hasty promise which could hardly be kept (See BudaPost, August 3, 2012). The unconfirmed news that individual accounts will only contain contributions paid after January 2013 has, nevertheless, aroused the indignation of left-wing commentators.

In Népszava, Judit Muhari accuses the government of deceiving people who were promised that their accumulated savings would be kept separate when transferred to the National Pension Fund. She quotes a comment by the then Minister György Matolcsy (recently appointed as governor of the National Bank) that savings would not be lost; and Prime Minister Viktor Orbán who stated in February 2011 that “individual accounts will be introduced in the National Pension Fund this year (that is, 2011)”. Some time later, Muhari recalls, the messages became more ambiguous and contradictory, concluding with a statement from the competent department: “the individuals who opted for the national system have no claim on the transferred assets.” And indeed, the author adds, there is nothing to be claimed, since the 3000 billion HUF transferred in 2010 have melted away to a mere 300 billion by now.

László Szily, a former commentator on Index (from which a mass exodus of core journalists made nationwide news – they are now expected launch a new media outlet) advises readers on his blog to “sit back and watch how Viktor Orbán will explain this.” He also recalls the government’s promises, which have been “repeated hundreds of times so that even idiots could understand them.” With even the “idiots” having got the message then, it will be a tall order for the Prime Minister to explain that the government “did not in fact steal their money.” The government could of course argue – he says – that the assets will be transferred later – but who could ever believe them? And although the new Minister of National Economy, Mihály Varga conceded in a television interview that some details were still under consideration and the government is ready to listen to counter-arguments, Szily thinks the offer means that “now I can go and exchange arguments with a granite wall.”

Reacting to press criticism on Monday, Fidesz floor leader Antal Rogán said former private pension savings will be traced on the new individual accounts, which will be set up before the end of the year, but how exactly they will be computed will be decided later on.

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