The mandatory private pension pillar in Hungary: An obituary

In 1998, the left-of-centre government of Hungary carved out a second-pillar mandatory private pension scheme from the original mono-pillar public system. Participation in the two-pillar system was optional for those who were already working, but mandatory for new entrants to the workforce. About 50 per cent of the workforce joined the second pillar voluntarily and another 25 per cent were mandated to do so by law between 1999 and 2010. The second pillar has not improved the financial stability of the social security system. Moreover, the international financial and economic crisis has highlighted the transition costs that are associated with moving, even if only partially, to a system of pre-funding. In 2010, the conservative government de facto “nationalized” the second pillar, and it is to use part of the accumulated pension capital to reduce Hungary's excessive public debt and annual budget deficit and to compensate for income tax reductions.