Correspondent's Choice

This story about pensions in Hungary and Bulgaria was published by EurActiv on 6th December 2010.

Struggling with budgetary pressure at home, Hungary and Bulgaria have nationalised their pre-funded pension schemes and excluded the cost of reform from public debt figures, opening a row with the European Commission. The EurActiv network reports.

In November, Hungary and Bulgaria came up with very similar policies that embarrassed those attempting to provide an EU-wide solution to budget accounting of the cost of pension reform.

The move raised eyebrows in the Commission (see Positions) as both countries decided to nationalise their pre-funded pension schemes, thus reducing both public deficit and debt calculated by the Maastricht criteria.

In fact, Budapest and Sofia succeeded where Bratislava had previously failed. The former Slovak government of Robert Fico started to lure citizens back into the pay-as-you-go (PAYG) system if they gave up their personal private savings. Yet, after two increased offers, the majority of Slovak workers refused to hand the government their piggy banks.

In Bulgaria, which has the most pressing demographic situation in the EU with a majority of the electorate now pensioners, the government came up with policies that forced the pension insurance industry to call for a nationalisation as they could not meet their due payments under the conditions set by the government.

In addition, judging from press reports, the Bulgarian public never realised the scope of the decision of the country’s parliament, taken on 19 November with the votes of the ruling Citizens for European Development of Bulgaria (GERB) party and the nationalist Ataka party. Most of the debate focused on the retirement age, while privatisation of the second-tier pension funds went unnoticed.

The Hungarian government, which enjoys a super-majority in parliament, gave citizens a choice. All have to decide which part of their pension they want to forego: those who want to keep their pre-funded accounts would not be eligible for partial PAYG in future, even though they have contributed to the current pensioner generation’s payments; and those who want to keep their entitlement to a first-tier pension must ‘volunteer’ to give their savings to the government in exchange for maintaining their stake in the PAYG scheme.

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