The statutory pension insurance system
12 March 2013.
The statutory pension scheme (organized and guaranteed by the State) was established in January 1, 1929. Since then it has undergone many changes and has gradually been extended to include everyone making a living through work, both employees and the self-employed (entrepreneurs). The vast majority of the population over the retirement age became entitled to some type of social security pension benefit or social benefit. The figure below shows the total number of beneficiaries below and above the retirement age (concerning benefits disbursed by the pension payment administrative body).
The income security of elderly and people with ill health is mainly provided through insurance-based benefits. However, a fundamental change occurred in this aspect in 2012 and since then, the income security of people with changed working capacity (people with ill health) has become based on health insurance benefits instead of pension insurance benefits. Income security for the elderly continues to be provided mainly by the pension insurance benefits. Nevertheless, there are some other benefits independent or partly independent of social insurance. Their scope has also been enlarged by 2012 due to the fact that – apart from certain exceptions detailed thereunder – only social benefits can be awarded for those under the retirement age instead of pensions. As a consequence, the scope of pension insurance benefits has been restricted to old-age pensions above retirement age and survivors’ benefits.
The system of pension insurance has gone through some structural changes in recent decades. The theoretical launch of the most recent pension reform, which began in 1991 with a resolution by Parliament and subsequent statutory amendments, has a pivotal role and was the driver of significant changes within the Hungarian pension system. Thus, for example, the length of service (insurance) time necessary for eligibility was raised, the number of years taken into account when calculating average income as the basis of awarding pensions has been continuously increasing. Simultaneously with extending the calculation period, the valorisation of incomes serving as the basis of pensions was introduced and the insurance income ceiling was built into the system for the purpose of determining the standard of incomes accepted as part of statutory insurance (being under the protective shield of insurance safeguard).
Changes were particularly notable in 1997 and 1998 when statutory regulations raised the retirement age (1997) and introduced the two-pillar statutory pension system which contains the funded pension element as second pillar (1998). However, this two-pillar system has been re-transformed into one-pillar system due to the multi-step changes of 2011-2012. The rules of pension calculation changed significantly in 2008, whereas the new process of increasing the retirement age was announced in 2010. In 2010-2012, the method of pension increase was modified from mixed indexation to a pure price-tracking system. In the meantime, eligibility criteria of early retirement (i.e. old-age pensions under the retirement age) had been gradually tightened and as rule of thumb – with certain exclusions – the institution of early retirement was terminated in 2012, at last. The other major change of 2012 is that handling the risk of invalidity through the mechanism of the pension system has also been terminated; the providing system has become part of the health insurance system. Each of the aforementioned measures – besides other objectives – aims at serving the long-term sustainability of the pension system the significance of which is emphasized by periodic demographic processes such as the falling number of live births and the increase in life expectancy.