Private pension schemes and their impacts on the public systems in the time of crisis The CMKOS –...
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Private pension schemes and their impacts on the public systems in the time of crisis The CMKOS – FES Conference Prague 31st March 2011 The Destiny of Mandatory Pension Funds in Hungary
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Transcript of Private pension schemes and their impacts on the public systems in the time of crisis The CMKOS –...
Private pension schemes and their impacts on the public systems in the time of crisis
The CMKOS – FES ConferencePrague 31st March 2011
The Destiny of Mandatory Pension Funds in Hungary
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The Destiny of Mandatory Pension Funds in Hungary
The success story
How could things go wrong?
The rules of the new game
... and the changes
What is next?
3
The success story – Starting of the new system
The mandatory pension pillar was implemented in 1998 in the windfall of the recovery of the 1995 crisis
Established by parametric reforms, e.g. increase of retirement age
The Budget took on the liability to repay the mandatory pension fund contributions to the 1st pillar
The institution was similar to 3rd pillar pension funds, non-profit mutual funds
In practice there were two major types:
– Affiliate of a financial group
– Independent or employer/industry based
The difference is in governace
Original Law included provisions on – for example –
Annuitization and a minimum standard for the annuities
Pension Guarantee Fund
Investment return benchmarking
4
The success story – Membership of the pension funds
0%
10%
20%
30%
40%
50%
60%
70%Pr
opor
tion
to a
ge 1
5-64
pop
ulati
on
Employment rate
Membership rate
5
The success story – Members pay contributions
0,0%
0,2%
0,4%
0,6%
0,8%
1,0%
1,2%
1,4%
1,6%%
of
G
D P
Contributions
Budget transfer
6
The success story – Contributions are invested
Bank deposit1%
Debt securities4%
Government bonds47%
Equity10%
Investment funds35%
Other3%
7
The success story – Growth of total assets
0%
2%
4%
6%
8%
10%
12%
14%
0
2 000
4 000
6 000
8 000
10 000
12 000
14 000
Assets (million EUR)
Assets to GDP (%)
8
How could things go wrong? – Macroeconomic indicators
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2001 2002 2003 2004 2005 2006 2007 2008 2009
%
of
G D
P
Deficit
Debt
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How could things go wrong? – Now see the elements together
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2004 2005 2006 2007 2008 2009 2010D
ebt a
nd T
otal
ass
ets
Defi
cit,
Budg
et tr
ansf
er, a
nd G
ov. B
ond
Government bonds toGDP
Total assets to GDP
Debt
Budget transfer
Deficit
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How could things go even worse?
In 2005 the National Bank initiated discussion on the performance of the mandatory pension funds
The conclusions were that the mandatorty pension funds are
Expensive, and
Achieve low returns
And it was true for the pension funds that cover 80+ % of the membership – the financial groups’ pension funds
The consequence was a wave of new regulations in 2007/8:
Limits on fee deductions
Implementation of the investment portfolio choice (mult-funds)
Unit accounting (why?)
Discussions continued on two regulatory issues:
To change the institutional form to joint stock company
Uniform and detailed regulation of the pension fund annuities
A Law was passed in 2009, but suspended by the Constitutional Court
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The rules of the new game
First crisis measures
Financial institutions and big corporations – telecoms, retail chains, energy sector companies – pay crisis tax for three years
Mandatory pension funds do not get the contributions until the end of 2011
The rules of contribution payment have changed
Only employee contributions generate rights
– Employee contributions are paid either into the 1st pillar – or completely to the mandatory pension fund [10%]
– Employer contributions will be used to finance the solidarity element of the 1st pillar [24%]
Consequence: Members of the mandatory pension funds shall not generate new accrued rights in the 1st pillar
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The rules of the new game
Members of the mandatory pension funds were allowed to switch back to the 1st pillar
Their contributions will be transferred to a special fund in the form of assets
– only the contributions – the members may decide about the returns
The special fund is regulated in an Act, and will be
– managed by the Government
– used by definition to guarantee the solvency of the Budget and support the a new pension system
The big question: How many memebrs returned to the 1st pillar?
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... and the changes
Pension FundYear-end
membershipStill members
Fidelity(%)
% of total
Aegon 602 017 16 889 2,81% 17,34%Allianz Hungaria 477 345 10 782 2,26% 11,07%Aranykor 72 165 3 090 4,28% 3,17%AXA 282 758 13 269 4,69% 13,62%Budapest (GE Money Bank) 30 441 2 680 8,80% 2,75%DIMENZIO 12 546 1 430 11,40% 1,47%Elettút Első Orszagos 2 427 154 6,35% 0,16%ERSTE 66 285 2 390 3,61% 2,45%Évgyűrűk 104 324 2 141 2,05% 2,20%GENERALI 76 156 2 166 2,84% 2,22%HONVED 23 728 609 2,57% 0,63%ING 523 767 19 197 3,67% 19,70%MKB 38 346 3 279 8,55% 3,37%OTP 756 021 17 641 2,33% 18,11%Postas 26 899 457 1,70% 0,47%Quaestor 6 709 170 2,53% 0,17%Vasutas 7 459 216 2,90% 0,22%VIT 8 807 862 9,79% 0,88%
Total 3 118 200 97 422 3,12% 100,00%
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What is next?
There are other provisions in the new regulation and the in the policy statements
Limits on the operational expenses of the mandatory pension funds
Introduction of individual accounts in the 1st pillar
Strengthening of the voluntary pension funds
Were the mandadatory pension funds too successful?
What will happen to the members of the mandatory pension funds?
