The Pension System and Voluntary Pension Funds in Hungary 💹

How much money does the Hungarian National System provide on its own? 💸

The retirement age in Hungary currently is 65. At this age – generally speaking – you will receive 65-70% of your current monthly income. This means that if you are earning a net. 500 000 HUF today, you will receive 350 000 HUF to cover all your expenses. But because of the reasons that we will mention shortly, many experts expect a decrease to a 45-55% rate or a sharp increase in the retirement age. To get 100% of your current income, you will need to have over 50 years of employment – which is not frequent, especially among foreigners.

Either way, many Hungarians and foreigners in Budapest and all around the country are opting for voluntary retirement schemes in order to properly prepare for their future.

What are the benefits of a Voluntary Pension Fund? ✅

The private pension system is very strong in Hungary. There is a noticeable distrust for the national system, mainly because of demographical concerns. As in most of Europe, the population is severely ageing. The monetary basis of the pension system is not saving-based – it instead redistributes the social security contributions of the current population.

The obvious problem is that there will be fewer and fewer people to provide the funds necessary to run this scheme for an ever-increasing amount of elderly people. This means that more people are going to opt for private pension policies in order to provide themselves with a stable, or even comfortable retirement.

You can use our retirement, or pension calculator to get approximate figures of the income you may expect. Keep in mind that the calculator is working on current data, we cannot calculate for the quite possible decrease in rates, a higher retirement age – so the amount that you see can be considered as a “best case scenario”.

The Private Pension options in Hungary – Pension Plans, Funds & ULIPs 📊

Currently, there isn’t a system like the American 401(k), where a sizeable part of the fund comes from the employer directly. We matched the English terms to the Hungarian policies as closely as possible, but there will be differences. Ask one of our English-speaking consultants if you need more information on any of these products. It is also important to know that there is a state-sponsored tax return incentive (except for the unit-linked type of pension and life insurance, but even that has tax breaks built into it.

There are 3 main ways to privately save money for your retirement: 

I. Pension Insurance in Hungary: Nyugdíjbiztosítás (a.k.a. NYB) 🩹

Pension insurance is a special type of life insurance that has a saving aspect to it. There are two main types, and the general difference between them is the level of risk and government incentives. 

Classic or Traditional Private Pension Insurance

In this case, the insurer guarantees a minimum amount of money at the end of the contract. This means the risk is minimal, and that there is a fixed – and a usually low – interest rate stipulated. The Hungarian Government also incentivizes this type of saving by giving a 20% tax return based on your annual deposit (to the maximum amount of 130 000 HUF).

Pros:

• very stable background provided by insurance companies
• the insurer pays in case of disability, not only at the end of term (depending on contract clauses)
• retirement age is set at the signing of the contract
• up to 130 000 HUF in tax incentive

Cons:

• hard to choose (huge differences in rates, terms & clauses)
• high fees at the beginning of the contract – should last at least for 5 years
• higher minimum recurring deposit amounts 

Unit-linked Pension & Life Insurance (similar to ULIPs)

While it is not an exact match of the western ULIP policies, the Hungarian analogue goes by the name “Unit-linked életbiztosítás” or “befektetési egységhez kötött életbiztosítás” – and it has many of the features of the ULIPs.

The main idea behind this service is that on top of the life insurance policy, it lets you choose between different types of investment portfolios.

These portfolios are usually differentiated along levels of risk, meaning that your earnings will heavily depend on your risk tolerance. There are multiple tests that you can take to assess your risk tolerance level, and it is usually part of the process at investment consultations. 

II. Voluntary Pension Fund: Önkéntes Nyugdíjpénztár (a.k.a. ÖNYP) 🏦

In this type of private pension fund, you also have the ability to choose between different types of portfolios that will determine how much interest you’ll gain during the contract. Usually, you can change your portfolio a few times for free, but most providers will charge you if you change it too frequently. You can choose from 3 to 8 packages that can consist of many hundreds of asset types and investments. They are constantly monitored and fine-tuned by the specialists of the fund. If you are not satisfied with the results of your fund you can always change it for minimal fees ( 3000 HUF + the cost of the money transfer).

The state gives the biggest tax incentive to these types of policies. The maximum amount is 150 000 HUF (if you deposit 750 000 HUF annually), and of course, this comes on top of the gains realized from your portfolio.

These incentives can be combined (for example with Classic Private Pension Insurance) to the maximum extent of 280 000 HUF.

Pros:

• low fees & expenses (usually under 1%)
• you can switch between portfolios
• up to 150 000 HUF in tax incentive 

Cons:

• low returns (usually the portfolios have a high ratio of state bonds)
• 10-year contract 
• you cannot choose individual assets to buy
• most of the portfolios rely heavily on the Hungarian economy

III. Pension Savings Account – Nyugdíj előtakarékossági számla (a.k.a. NYESZ) 💱

The Nyugdíj Előtakarékossági Számla (or NYESZ) is a product made for those people, who are familiar with the stock market and want to make their own decisions – with a little tax incentive from the Hungarian state. In this plan, you basically have a securities account to your name, where you can make investments into different kinds of assets. The maximum amount of the tax return is 100 000 HUF – in case your total annual deposit reaches the 500 000 HUF mark.

You can also combine this incentive with the other schemes’, but the combined amount will not be over 280 000 HUF.

Pros:

• you can choose individual assets to buy
• very low fees (no need for financial managers)
• BEVA guarantee (a nation-wide investment protection fund, provides protection up to 100 000 EUR)
• up to 100 000 HUF tax incentive

Cons:

• much riskier if you are not familiar with the markets
• in practice, you will be able to buy primarily Hungarian stocks
• too costly to do actual day trading on the account  

How liquid are these pension funds? How difficult is it to transfer, or get out of them? 🔀

It can be said that these types of pension schemes are not very liquid. As the name suggests. the state incentivizes these contracts in order to provide benefits to those who have reached retirement age, or those who have a contract that is over 10 years old. 

All of these pension schemes have a lot of rules and stipulations in place regarding liquidation or transfers. We can only provide you with exact information in these regards if we know a lot more about your circumstances – for example, your current pension fund’s country of origin.

How can GRANTIS Help in Reaching Your Retirement Goals? 👨‍💼👩‍💼

Every service mentioned above differs heavily in fees, terms, and conditions depending on the type of pension scheme. It is a hard thing to choose without prior consultations even for native Hungarians, but if you are not familiar with the language and the system – you will have a really hard time making an informed decision.

We have over a decade of experience with all types of private retirement funds & savings that are available in Hungary. We are independent consultants who can provide you with solutions tailor-made for your very own situation. Making a years-long commitment is not an easy thing to do, but we are ready and able to assist you right from the get-go, up until the termination of your contract. Contact us via the form below!