The OECD has called on Hungary to strengthen voluntary pension savings, recommending automatic enrolment (AE) into occupational pension plans and measures to rebuild confidence in private pensions as the country faces one of the largest projected increases in pension spending in the EU.

In its latest Economic Survey of Hungary, the OECD said voluntary pension contributions remain low compared with other OECD countries.

It argued that awareness and confidence in private pension products should be improved following the country's 2011 “switchback reform”, which abolished the mandatory defined contribution (DC) pension system.

The OECD suggested introducing AE into occupational pension plans with an appropriate default contribution rate while allowing individuals to opt out.

It also recommended developing a pension dashboard, similar to Denmark’s, enabling people to view expected retirement income from public and private sources and model different retirement scenarios.

The OECD added that creating a capitalisation pillar could increase the resilience of Hungary’s pension system to future demographic shocks, although it acknowledged this would only provide benefits over the longer term as sufficient assets are accumulated.

The OECD warned that Hungary faces severe demographic pressures, with the old-age dependency ratio projected to rise from 35 per cent in 2024 to 54.3 per cent by 2070.

Pension-related expenditure is expected to increase by around 4.3 percentage points of GDP over the period, one of the largest projected increases among EU member states.

It argued that reforming the public pension system will be key to safeguarding fiscal sustainability, recommending that the statutory retirement age be linked to life expectancy.

Under the OECD’s proposed reforms, Hungary’s statutory retirement age would gradually increase from 65 currently to around 67 by 2045 and 69 by 2070.

The OECD said this would still allow the average time spent in retirement to increase, from around 15 years in 2025 to 18 years by 2070, compared with around 22 years if the retirement age remained unchanged. Early retirement could continue to be permitted up to two years before the statutory age, but with a corresponding reduction in benefits.

The OECD estimated that a package combining retirement age reforms, changes to early retirement eligibility and adjustments to additional pension payments could reduce net pension spending by 3 percentage points of GDP by 2070, with 2 percentage points coming from lower expenditure and 1 percentage point from higher tax revenues.

---