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Recent changes to pension system necessary, social and health minister says

The pension changes introduced this year were necessary regardless of the crisis, some of them resulted in immediate savings, while others will influence the pension system gradually, and substantially reducing pension expenditures in the long term, Social and Health Minister László Herczog said a conference of pension funds on Wednesday.

This year's changes - primarily the one that replaces annual bonuses, equivalent one-month pension, with a premium linked to economic growth - resulted in immediate savings of more than HUF 300 billion.

The amendments passed by parliament earlier this year eliminated pensioners' annual bonus, equivalent to a full month's pension, and replaced it with a premium up to HUF 20,000 if annual economic growth exceeds 3.5% or up to HUF 80,000 if GDP growth reaches 7.5%.

In another amendment, pension payments will rise at the rate of inflation as long as GDP growth remains under 3% or exceeds 5%. They will be indexed to a varying mix of CPI and the net wage increasing between GDP growth of 3-5% (similar to the current rule).

Under the changes, Hungary's retirement age will rise from 62 to 65 in annual increments of six months starting in 2012. The minimum age for early retirement will rise to 60 for men and to 59 for women.

Herzog said the rise of the retirement age will have a gradual impact, resulting in savings equivalent to almost 1% of the GDP by the early 2020's. A long-term positive effect will mainly be achieved by changing the indexation of pensions and by raising the retirement age, including the limit for early retirement.

A stable operation of the pension system in the longer term will require further adjustments in the coming decades, Herczog said. Without such changes, the 2030's will see not just a rise in expenditures as a percentage of the GDP, but an increasing social security deficit as well. (MTI-Econews)