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Constitutional Court to look into pension acts early next week

The agenda of Hungary's Constitutional Court for next Monday and Tuesday include the acts related to private pension funds, the financial daily Napi Gazdaság reported.

The Constitutional Court will initially discuss only whether it has authority to rule in the case.

Legislation approved last autumn restricted the top court's scope of jurisdiction over matters related to the budget, central taxes, social security contribution and duties after the court annulled a law to introduce a 98% tax on severance pay above HUF 2 million. Under the amendment, the Constitutional Court may annual such action if it violates the right to life and dignity, the right to protect personal data, the freedom of thought, conscience and religion, and rights connected to Hungarian citizenship.

The government has recently promised that the powers of the Constitutional Court will be reinstated by the autumn.

Opposition parties, private pension funds and private individuals had requested that the court annul the pension-related acts passed last year.

Parliament approved last October a 14-month suspension of state transfers of membership fees to the private pension-fund system, and November legislation ended mandatory membership in private pension funds for career-starters and gave existing members of the funds the option to join the state pension system by the end of 2011, bringing their pension savings with them. Membership in the private pension funds was earlier mandatory for career-starters under pension reforms launched in 1998.

Legislation passed late last year then gave members of private pension funds until January 31, 2011 to opt out of the former mandatory second pillar of the Hungarian pension system, and transfer, together with their private pension fund savings, to the state pillar. Members who decided to stay will lose all future contributions to the state pension system by their employers. The legislation required those who opted to stay to declare their intent to do so. The legislation on the transfer of the pension assets stipulates former private pension fund members may take out any yield over inflation on their assets tax free.

A little more than 3% of Hungary's more than 3 million private pension fund members opted out of the move to the state pension pillar by the January 31 deadline. The transfer of assets has not started yet and is unlikely to take place in the first half of the year. According to earlier information, private pension funds had 45 days to work out a plan for the transfer of their assets after receiving by March 1 data on members who will move to the state pension pillar. The plans will be submitted for approval to financial market regulator PSzÁF. Observers say that the transfer can also be hindered by the absence of regulation on how to calculate the real yield.