Hungarian pensioners are on the cusp of poverty – how can they get rid of it?

my article first bit I noted that only a few months have passed since this year, but the retired society is already lending to the state. Because of high inflation, the pension adjustment will likely be needed twice this year. Annual inflation is expected to reach 10.3 percent this year, according to the latest International Monetary Fund data Climate forecast While the pension increase was 5 per cent in January of this year. How is this possible?

Little pension hike history

From 2012, pensions will have to be increased in January of each year from the year of the increase in line with the increase in consumer prices planned in the Central Budget Act. Accordingly, for example, in 2021, the total increase, along with two additional extraordinary increases (June and November), amounted to 4.8 percent, and in January 2022, pensions were increased by 5 percent.

According to the Pension Law, pensioners can receive an additional pension increase in November of the specified year if the rate calculated on the basis of inflation data of the Central Statistical Organization exceeds the percentage increase valid in January by at least 1 percentage point. In this case, retirees will receive the difference in retroactive increase from November to January.

Pensioners face this situation by lending to the Hungarian state until the later correction date, when the money owed to them will be used by the state for 10 months.

If the difference between the increase calculated by the Central Statistical Office and the increase in January is less than one percentage point, the multiplier surplus for the whole year will be converted into a single amount with the November benefits, and the amount increased by the monthly difference will be the basis for the increase next year. If the inflation forecast in the Budget Code changes during the year, an extraordinary adjustment may be made accordingly, as was the case in June 2021 and is expected to take place in June of this year as well.

Thus, the increase in pensions at present depends only on the planned CPI for the current year.

It is clear that an increase based on an estimate gives the government more opportunity (whether it wants to estimate inflation higher or lower) than if the increase had to be done on the basis of actual inflation data compared to previous periods. Before 2012, the first and third year of the year preceding the current year. Fourth Quarter and Fourth Preceding Year. The January increase was revised to the quarterly real inflation rate.

How was it before?

Previously (between 2010 and 2012), with a GDP increase of at least 3 percent, an increase in net profits could have been included in the increase in pensions, but this was never due to the unfortunate development of GDP at that time .

For a long time before 2010, pensions were raised according to the Swiss index, that is, they were halved with the expected growth of national profits and inflation. However, this proved to be an unsustainably costly solution in 2010, even though it was partly possible to prevent the value of pensions from falling behind the earnings of those of working age.

It is no coincidence that the relatively rapid rise in the national average wage since 2014 has prompted more and more retired organizations to demand some reissue of the mixed increase (Swiss index).

Previously, a very unfavorable change in the method of raising pensions was not particularly noticeable to retirees, since the real value of pensions increased significantly by more than 8 percent by 2014, despite the fact that the increase came only after the inflation rate. For four years until 2014, the government overestimated expected inflation above the actual rate for political and other economic reasons, and with pensions rising at the estimated rate of inflation, their real value rose rapidly in a low inflation environment. (An important element in overestimating inflation was cutting public expenditures.) Naturally, retirees were reassured that they did not have to pay the extra money.

However, this golden age of rising – culminating in the partial payment of a 13-month pension in those years – came to a halt in 2015.

Despite the significant decline in pensions in the 1990s (the real value of the average monthly benefit was 16), no improvement is expected in the context of accelerating inflation.

At the same time, raising the pension in its inflationary version also consumes a lot of money. According to the statistics of the National Youth Office, the number of those entitled to a pension increase is a quarter of the population: in addition to 2 million 30 thousand elderly pensioners, among them more than 130 thousand women receive a reduced pension for women, and this includes 2.5 million. People who are entitled to a raise. Taking into account the average annual pension fund spent on pension expenditures of 4,000 billion Swiss francs, an increase of one percentage point would cost HUF 40 billion.

Between 2014 and 2021, the average wage in the national economy grew at a rate two to three times higher than inflation, which is why the purchase value of pensions – adjusted only for inflation – is declining compared to the earnings of the population of active age.

The slope of the relative poverty bracket is significantly reduced by the 13-month pension, and the effect of the bracket may disappear throughout the period of high inflation. However, this does not help the status of long-term retirees or low-income retirees. The method of inflation must be changed to increase pensions.

What is the best procedure to raise the pension?

In addition to inflation, the increase in pensions must also compensate for the deviations arising from the method of determining pensions. Average earnings on which pensions are based are calculated by adjusting net earnings earned annually since 1988 to the level of average net income in the year prior to the founding year, giving a computed average of average monthly income multiplied by length of service. on the percentage multiplier, which is the amount of the pension. Since the average wage level in the national economy in the previous year for determining the current pension is the reference value, a retiree who applied for a pension in a later year has done much better every year since 2015.

For this reason, the factor on which one applies for a pension is practically as powerful as the factor on which the pension depends, i.e. the number of years worked and the average income of the profession in question.

Who is this valuation As a result of this procedure, the amount of the pension for new retirees in the founding year is satisfactorily adjusted with the average income in the national economy, but the relative decrease in the purchasing power of the pension begins from the second year of retirement . This is due to the current method of increasing the pensions on which it is based Pensions are raised only at the rate of inflation, so every year when the growth rate of average net income in the national economy is higher than the rate of inflation, pensioners fall further down as relative poverty slides. It is no coincidence that the demand for the return of the Swiss index has become stronger in recent years.

If the Swiss index had been applied during the pension increase since 2015, the amount of the average pension in 2022 would have exceeded CHF 200,000.

However, an increase in pensions should not only slow the relative slippage (as for a 13-month pension reversal), but also address the inequalities experienced by those previously identified and thus reduce their pensions. Therefore, in addition to a mixed indicator that follows a predetermined percentage of wages and inflation, it is advisable to include in the pension increase system a corrective indicator that ensures a compensatory increase in pensions that have fallen deeper and deeper in previous years.

If not, despite the dampening effect of a 13-month pension, a separate corrective increase in pensions may be inevitable in order to reduce the unfair difference in pension amounts and the unjustified disparity between pensions, which has nothing to do with this. Pensions. Justified differences in earnings and length of service.

Disparities between pensions are becoming more and more unacceptable, they can set pensions up to twenty times the value of the average pension (currently HUF 135,000) and up to a hundred times higher than the amount of the minimum pension (fort 28,500 unchanged for 15 years) ) .Where there is no ceiling for pensions. Differences in length of service earned during working life are still not sufficiently reflected in pension ratios (the value of the first twenty years is twice the value of the second twenty, while the value of each year continues to fluctuate). As a result of the abolition of the contribution ceiling in 2013, the amount of future pensions may reflect the differences in earnings associated with earnings in an active life, the regressive framework, which has remained unchanged since 2013, cannot be controlled in any way. road.

In addition to high unfunded pensions, the situation of the masses with woefully low pension expectations (disasters, primary producers, part-time workers, minimum wages, may pose a risk.

In recent years, the differences in pension amounts by retirement year have not only decreased, but increased to dramatic proportions.

In the case of the same profession, the pension set in 2015 may be up to 80% less than the amount of the pension that will be established this year, and in real numbers, taking into account the effects of inflation, the change may soon be 50%.

In general, this is not enough for a fair increase in pensions, since the system of pension increase has to deal not only with the constant disconnection from the average net income of the national economy, but also with the disintegration of a retired society.

Divergence can only be slowed down by a varying rate of pension increase, for example by the method of pension increase banding, where the younger retiree receives a higher percentage or greater amount of the pension increase.

The 13-month pension, which is due to all pensioners in the same amount as their January pension, has put this devastating effect into the turbo phase, where a pensioner of HUF 100,000 receives a pension of HUF 100,000 and a pensioner of HUF 300,000 receives a pension of HUF 300,000 that has no limit Higher after the thirteenth month pension. In European pension systems with fringe benefits similar to a 13-month allowance, the amount payable is set or fixed at the same amount for all.

Thus, a Swiss type conversion of pension increase on a mixed comparison basis is necessary but not sufficient, adjustment of the valuation according to the year in which the pension was established and adjustment of the range depending on the amount of the pension should be included in the new procedure in the future for increases.

Cover Photo: Getty Images