EC assesses shift in retirement age and pension sustainability

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Hungary will spend 11.4% of GDP on public pensions in 2060, roughly the same percentage as today, according to a study by the European Commission published last week. What this means is that similar to the European Union average, the level of public pension expenditure from 2013-2060 as a percentage of GDP will remain virtually unchanged, as compared to the 4.1% increase in Lithuania (the highest in the EU) and -3.9% in Croatia (the most significant drop). 

Unlike in most EU countries where the state contributes to the public pension system, the Hungarian system is largely sustained by employers and their share is expected to grow over time, as is the contribution made by employees.

Currently, the Hungarian female population spends significantly more time in retirement (30.6% of their adult life) than the male population (26%) and in spite of an expected increase in the above figures for both genders, the gap between the two won’t change significantly as the female population is expected to spend 34% of their adult life in retirement in 2060 while the male population will spend 30.5%.

The duration of retirement over average length of working career among the female population is currently 52.8%, while among males that figure is only 39.5%. In the case of the females, this figure is expected to increase by 8.5 percentage points by 2060 and 9.7 percentage points for males, narrowing the gap to 11.1 percentage points between the two genders. The duration of male retirement is expected to jump to 20.8 years by 2060 from the 15.8 years it is today, while the duration of retirement among the female population will increase by 4.3 percentage points during the same period to 24.1 years.

The average effective exit age from the labor market for males in 2060 will be 65.3 years, 2.3 percentage points more than today, while the female population’s exit age will be 64.9 years, up from 63 years today. Sensitivity analyses reveal that life expectancy in Hungary could have a big impact on gross public pension expenditure. Additionally, Hungary’s gross public pension expenditure is the most sensitive among EU countries to changes in employment rates. The study also found that Hungary’s gross public pension expenditure is sensitive to economic productivity.

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