HUNGARY - Hungarian pension funds achieved up to nine times the real return rate in 2002 compared with previous year, according to preliminary data from Mercer Human Resource Consulting.
Currently, the largest portion of the funds is invested in domestic bonds, typically around 90%. For 2001, the latest year for which figures are available, three funds - Erste, Allianz Hungaria and MKB - were the best performers with returns of around 8%. But with an inflation rate of over 9% in 2001, real returns were in negative territory. Though the data for 2002 is not yet completely confirmed, results look more promising.
However, Istvan Horvath, senior consultant with Mercer Human Resource Consulting in Budapest, said: “In 2002 inflation was 5.3% and many funds realised 8-9% investment returns, but normally we can expect only 1- 2% real return.”
Hungary started pensions reform in 1994 with the introduction of voluntary pension funds.
By 1998 there were more than 200 voluntary mutual pension funds (VMPFs), some closed funds, established by individual companies for their employees, others multi-employer VMPFs run by banks and insurance companies.
Gradually smaller company funds have been merging with multi-employer VMPFs. In 1998 mandatory pension funds (MPFs) appeared. People under 30 may join an MPF of their own choosing in 2003 if they have not already done so, but those over 30 who have not opted for a mandatory fund will be forced to remain in the State PAYG system.
Contributions to MPFs amounting to 7% of salary are paid by the employee, with an option to increase this to 10% of salary. An additional 1.5% is paid into the PAYG system. Non-MPF members pay 8.5% into the PAYG scheme. Employers pay 18% of salary into the PAYG scheme.
Though the voluntary funds got a head start with their earlier establishment, they have been lagging in building up membership, partly because tax allowances have been reduced from 50% of contributions to 30%. At the end of the first quarter 2003 mandatory funds boasted 2.21 million members against 1.18 million in voluntary funds.
By comparison assets in mandatory funds amounted to HUF448bn (e1.7bn) against HUF380bn in voluntary funds. The largest voluntary funds, each with around 150,000 members at the end of 2001, were Allianz Hungaria and OTP.
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