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Committee submits motion channeling private pension funds to state indefinitely

An amendment proposed by Parliament’s Budget Committee on Thursday would channel pension contributions - 10% of gross wages - paid by members of private pension funds to the state pension fund indefinitely.

Prime Minister Viktor Orban said in an interview with public radio on Friday morning that rechanneling the contributions of the some 100,000 Hungarians who remained in private pension funds to the state pension pillar would continue indefinitely, thus completing the restructuring of the pension system.

National Economy Minister Gyorgy Matolcsy mentioned the rechanneling already on Thursday, putting the measure among several designed to plug a HUF 302bn gap in the 2012 budget resulting from lower than expected growth and a weaker forint.

Parliament earlier approved a move to rechannel contributions of private pension fund members to the state pension system for a period of 14 months starting in November 2010.

Mr Matolcsy said on Thursday the rechanneling would probably continue in 2013, adding that the government could again offer private pension fund members a chance to switch to the state pension pillar.

Details will be worked out later, government spokesman Andras Giro-Szasz said on Friday when asked how the planned steps would affect the savings of about HUF 300bn still held in private pension funds.

The Stabilitas Private Pension Fund Association said late Thursday the measure could mean the end of private pension funds in Hungary. The association added that it would turn to the Constitutional Court for legal redress over the planned step.

Under Hungary’s new Constitution and amended legislation on the Constitutional Court which come into force on January 1, 2011, reviews of the constitutionality of legislation may only be initiated by the government, one-quarter of MPs or an ombudsman. Additionally, the Constitutional Court is prohibited from reviewing matters related to the budget or contributions to the state - with the exception of those that affect basic human rights - until Hungary’s state debt falls to 50% of GDP.

Hungarian members of private pension funds had until the end of January 2010 to opt out of a move, along with their retirement savings, back to the state pension pillar. About 97% of members returned to the state pillar, bringing some HUF 2,946bn in assets with them.

Hungarians who decided to stay in the private pension funds are not entitled to a state pension and pension contributions paid by their employers - 24% of gross wages at present - goes to the state pension fund. Under current legislation private pension funds are still to receive employee pension contributions which are 10% of their gross wages.