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Parliament passes amendment on real yield payment to former private pension fund members

Parliament passed an amendment initiated by the National Economy Minister that outlines the way real yields are to be calculated on the assets of private pension fund members returning to the state pension pillar.

Hungarian members of private pension funds had until the end of January to opt out of a move, along with their retirement savings, back to the state pension pillar. The 97% of members who made the move were promised payment of any yield over inflation on their pension savings.

Legislation passed earlier set May 31, 2011 as the valuation date for the assets and mandated their transfer in a single step to a newly created Pension Reform and Tax Reduction Fund, to be managed by the government debt management agency ÁKK, by June 12.

The new amendment instructs private pension funds to use the April consumer price index (CPI) when calculating the real yield for May. This is necessary because official May CPI will not be available by June 12.

The private pension funds have until July 20 to claim back from the state fund the real yield to be paid to former members who reclaim the yields.

The amendment authorizes the State Treasury to grant an interest-free bridging loan to the Pension Reform and Tax Reduction Fund (NyAA) with the aim of ensuring payments of the real yields do not cause liquidity problems. The fund will use revenues from the sale of the assets to repay the loan.

The amendment lays down rules to prevent conflicts of interest regarding the fund and it allows private pension funds to deduct HUF 795 from the account of every member returning to the state pension pillar on May 31 for an operating reserve. The fund has to transfer the unused part to the NYAA by September 15.

The amendment, which will take effect three days after its official publication, does not specify a deadline for funds to make payments of the yields to former members.

Real yields of about HUF 220 billion are expected to be paid out to former private pension fund members, according to an estimate by the National Bank of Hungary.