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Decreased Employment and Pensions – The Case of Hungary Maria Augusztinovics

Explore the impact of reduced employment on pensions in Hungary. Analyze pension reform measures, retirement trends, and future policy recommendations based on comprehensive research and data analysis.

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Decreased Employment and Pensions – The Case of Hungary Maria Augusztinovics

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  1. International Forum on Pension Reform: Exploring the Link to Labor and Financial Market ReformsBled, 7-9 June 2007 Decreased Employment and Pensions – The Case of Hungary Maria Augusztinovics auguszti@t-online.hu Based on a detailed study by the author and Janos Köllőto be published in Közgazdasági Szemle (Economic Review)June 2007, in Hungarian Bled2007.ppt

  2. PLAN: • From full to low employment • 2. Exodus into retirement • 3. Pension reform 1998 • 4. Pension promise until 2020 • 5. Policy conclusions Bled2007.ppt

  3. Part 1: From full to low employment Figure 1 Cross-sectional employment ratios population aged 25-64 raw average adjusted by1970 weights Bled2007.ppt

  4. Figure 2 Age-adjusted probability of employmentmales aged 25-64 percentage points difference versus high-school graduates university skilled workers primary Straight horizontal: high school graduates ―│―│―│ Bled2007.ppt

  5. Figure 3 Employment ratios Age-profiles and cohort paths - males with primary education Cross-section: 1970 1990 1996-2001 Birth cohorts: red 1944 blue 1950 green 1956 Bled2007.ppt

  6. Figure 4 Age-adjusted gross monthly wagesmales aged 25-64 percentage points difference versus high-school graduates university skilled workers primary Straight horizontal: high school graduates ―│―│―│ Bled2007.ppt

  7. Figure 5 Relative wages (wage at age 30 = 100) Age-profiles and cohort paths - males with higher education Cross-section: 1989 1996 2001 Birth cohorts: dark 1938 red 1944 blue 1950 green 1956 Bled2007.ppt

  8. Part 2: Exodus to retirement Number of new retirees thousand persons Figure 6 total old-age disability Bled2007.ppt

  9. Figure 7 Restricting pension benefits monthly old-age pensions in 2003 per years of service by year of retirement huf year of retirement Bled2007.ppt

  10. Part 3: Pension reform 1998 Focus: partial privatization (25 percent) two major errors - no age-limit for joining the mixed system - provision of annuities unregulated Public scheme remains earnings-related basic formula: accrual factor x years of service x earnings 20 years of service threshold for eligibility Redistributive components to be phased out until 2013: - non-linear scale of accrual factors (80 % for 40 years, 53 % for 20) from 2013 1.65 % for each year (66 % for 40 years) - in some special cases 15 years of service qualify until 2009 - minimum pension guarantee out by 2009 - degressive calculation of earnings out by 2013 „Pervert” redistribution sustained: 19.9 years of contribution lost because of threshold Bled2007.ppt

  11. Part 4: Pension promise until 2020 Figure 8 Baby-boom or employment? number of births versus population and eligibility at age 60 year of birth Area between o―o―o and blue: disability pensioners blue and red: non-disabled, non-eligible at age 60 Bled2007.ppt

  12. Table 1 How is this possible? cohorts 1945-1959 together in 2005 (aged 45-60) percent of respective population Prim. Second. Higher education TOTAL RETIRED old-age 8 5 4 6 disability 27 15 4 17 TOGETHER 35 20 8 23CONTRIBUTOR all year 24 50 65 44> ½ year6 7 4 6< ½ year 6 7 4 6 TOGETHER 36 64 73 56NEITHER-NOR 29 16 19 21 Bled2007.ppt

  13. Table 2 Expected relative entry pensions (cohorts 1945-1959 average of 2005-2020) Prim. Second. Higher education TOTAL PRESENT FORMULAall year 65 87 133 89 > ½ year 43 59 111 58 < ½ year 2525 8030TOGETHER 53 74 124 75 2013 FORMULAall year 55 72 110 74> ½ year33 44 85 44 TOGETHER4360 100 60 relative: percent of overall average wage in year of retirement green: < 40 percent ILO convention Bled2007.ppt

  14. Results: Rough, very cautios estimates, allowing for mobility along the life-path (in and out from employment), based – in lack of longitudinal data – on brave assumptions: 10-20 percent, altogether about 250-500 thousand people without disabitlity or old-age pension at pensionable age over the coming one and half decade. Those with entry pensions less than half of the average wage more than another 10 percent, about 250-300 thousand people Mass poverty (20-30 percent) in old age looming ahead Bled2007.ppt

  15. Part 5: Policy conclusions The Hungarian pension system requires a new reform to solve the basic problem of Income security in old age. (Aging and financial sustainabilityto be duly accounted for.) Options: 1. Re-install redistributive, „solidarity” components 2. Leave poverty to „safety net”, on means-tested basis 3. Resort to flat-sum basic pension, leave income-replacement to voluntary saving 4. Split mandatory unique public scheme in two: - flat-sum basic pension plus - earnings-related insurance Round table initiated by the prime minister. Bled2007.ppt

  16. THANK YOU FOR YOUR ATTENTION Bled2007.ppt

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