State or private pension

Regarding private pension fund membership and certain rules of returning to the social security pension system, on December 13, 2010, the Parliament accepted Act CLIV of 2010 on the Pension Reform and Debt Reduction Fund and the modification of certain acts relating to the free choice of pension fund, which was published in the Hungarian Official Journal on December 22, 2010.

According to the announced act, the members of private pension funds have to declare until January 31, 2011 that they intend to maintain their membership in the private pension system. In the absence of such a declaration, the private pension fund membership of fund members will automatically cease by virtue of law as of February 1, 2011.

Who have to make a declaration?

Based on the act, the private pension fund member must declare his intention to maintain his membership in the private pension system until January 31, 2011. In the absence of such declaration, the private pension fund membership of the persons not receiving social security pension service – as career starters or as persons voluntarily opting for this – who had previously become private pension fund members will cease as of February 1, 2011 by virtue of law.

The detailed procedural rules of the pension declaration were regulated in a government decree.

Method and content of the declaration

The member of a private pension fund may make his pension declaration at any pension insurance directorate of Hungary, at the Directorate of Pension Disbursement or at the Central Administration of National Pension Insurance but the declaration must be made personally to ensure the checking the personal identity of the maker of the declaration.

The declaration must state the name, address and social security identification number of the private pension fund member and the name of the private pension fund. The declaration must also be sent to the employer of the fund member within 5 days.

Local declaration

Private pension fund members who are hindered in making a declaration in front of the above listed bodies of the National Pension Insurance due to disability, other health causes or because they are subject to a sentence or measure restricting their personal freedom may, based on a request, make their pension declarations by an administrator of the National Pension Insurance visiting them.

Hindered private pension fund members may request the making of their pension declaration locally from the competent body of the National Pension Insurance in writing until January 21, 2011. The persons who are in permanent foreign employment, permanent foreign service or are pursuing studies abroad during the period available for making the pension declaration may make personal declarations at the relevant embassy of the Republic of Hungary.

Certificate request

The persons eligible for local declaration and the fund members staying abroad permanently, who were unable to make a pension declaration until January 31, 2011 for reasons beyond their control may, within eight days of the elimination of the cause of their hindrance but until February 28, 2011 at the latest, subject to supplementarily making their declaration request a certificate. The competent body of the National Pension Insurance judges requests within 15 days of receipt but the private pension fund membership of the applicant fund member will be maintained until his request is effectively judged.

Consequences of maintaining private pension fund membership

In the case of the persons remaining private pension fund members:

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the 10 percent pension contribution will be transferred to the private pension fund account of the fund member after December 1, 2011;
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for the period between October 1, 2010 and November 30, 2011 (during which the membership fees are paid to the social security pension system), the service period forming the basis of the social security pension will be established as if the person remaining in the private pension system were a member of the social security pension system during these eleven months, i.e. the loss of the membership fees will not be compensated in cash but by a higher amount of social security pension.
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after December 1, 2011 the service period of the private pension fund member will not increase in the social security pension system and his salaries and income acquired after this date may not be considered in the assessment of his social security pension service. However, under the conditions defined in Section 32 of the Act on Social Administration and Social Services, pension fund members will remain eligible for old-age annuity.
From January 2011, private pension funds may only spend a maximum of 0.9 percent of the contributions on operation costs andthe fee of wealth management may not exceed 0.2 percent based on the wealth managed.

The following applies to the persons returning to the state pension system:

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No declaration needs to be made for the return to the state pension system.
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Their private pension fund membership will cease as of March 1, 2011 and they will automatically be transferred back to the state pension system.
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The returning to the state pension system qualifies as a waiver of members’ wealth accumulated up to this point in the private pension fund and in the future they will only receive pensions from the social security pension system also for their time spent as private pension fund members. At the time of their retirement, their pensions will be established based on the effective pension regulations.
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Members may withdraw the amount in excess of the so-called yield-guaranteed principal calculated on the basis of the membership fee payments to the personal accounts, which forms a part of members’ receivable and may also withdraw the amount of their membership fee supplementation paid during their period of private pension fund membership (hereinafter referred to as the collectively withdrawable amount). After returning to the state system, the collectively withdrawable amount may be used in three different ways:

1. the member may withdraw it from the fund in one lump sum;
2. he may transfer it to his voluntary mutual pension fund account. This amount is not only fully exempt from tax but a refund to the voluntary pension fund from the transferor’s personal income tax of 20 percent of the transferred amount capped at HUF 300,000 may be requested in the transferor’s 2011 tax return. Voluntary pension funds issue certificates for the purposes of this refund.
3. he may request the crediting of the transferred amount to his personal account opened in the social security system.

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The member returning to the social security pension system must make a declaration as to the use of the amount of his membership payment until February 28, 2011. In the absence of such a declaration of the member, the private pension fund will ask the member between March 1 and March 31 of 2011 to make a declaration in this regard. If the individual fails to answer this call, the amount of his membership payment will be disbursed to his address. If he does not receive the payment, the amount will be credited to the personal account of the individual opened in the social security system.

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