Social Insurance Pension Scheme

Mandatory insurance

• Employees in the private and public sector (incl. self-employed persons) and all other groups that are subject to social insurance contributions.

Voluntary insurance

• Persons not compulsorily insured in the statutory old age pension scheme and of legal age; also available for persons living abroad.

General finances

• Mainly PAYG-financed from insurance contributions.
• Partly tax-financed out of the general budget.

Contribution rates¹

• Employee contributions: included in the payment of the ‘social security contribution’ (társadalombiztosítási járulék) of 18.5% of total gross earnings without contribution assessment ceiling; 54% of the collected amount is allocated to the Pension Insurance Fund.
• Employer’s contributions: included in the payment of the ‘social contribution tax’ (szociális hozzájárulási adó) of 15.5% of gross earnings without contribution assessment ceiling; 71.63% of the collected amount is allocated to the Pension Insurance Fund.
• Certain groups of people pay a lower pension contribution of total gross income without contribution assessment ceiling: 22% (for those insured voluntarily in the scheme) or 10% (e.g. recipients of job-seeker’s support, of certain child-raising benefits, rehabilitation benefit; ecclesiastical persons in church service; members of social cooperatives etc.).

Taxation of contribution payments

• No tax exemptions for employee’s/employer’s insurance contributions.

• The scheme is supervised by the Prime Minister’s Office - Minister for Families (Miniszterelnökség - Családokért Felelős Tárca Nélküli Miniszter) and is managed by the Hungarian State Treasury (Magyar Államkincstár).
• The Pension Payment Directorate (Nyugdíjfolyósító Igazgatóság) is responsible for paying pensions.
• Government offices of the place of residence are responsible for national pension claims, while the Government Office of the Capital City of Budapest is responsible for pension cases when an international legal instrument is applicable.

Qualifying conditions

• Standard old age pension: statutory retirement age increases to 65 until 2022 for those born in 1957 and after; minimum insurance periods: 20 years (minimum insurance periods for ‘partial pension’: 15 years)².
• Pension for women with 40 years of eligibility period: no specified retirement age; minimum insurance period: 40 years (including pension-relevant period pertaining to child care; minimum period of gainful activity: 32 years that could be reduced to 30 years in certain circumstances). The eligibility period is decreased by one year for every child raised in a household with five or more children, with a maximum reduction of 7 years.

Early retirement

• No options for early retirement.

Deferred retirement

• Retirement can be deferred without limit except for certain occupational groups (such as civil servants and judges); retirement can be deferred with positive (permanent) adjustments to pension benefits (0.5% per 30 days); insurance periods above 50 years do not lead to an increase in pension benefits.

Combining employment & retirement

• Termination of employment is not a precondition for claiming pension benefits in the private sector.
• Ceasing of employment is a precondition for claiming pension benefits in the public sector. Those employed in the public sector must choose between pension and employment (these two options are mutually exclusive). Those in receipt of a pension may opt to continue working. However, in this case the pension payment is suspended from the first day of the following month after the date of entering into gainful activity.

Pension benefits

• Primarily based on the amount of contributory earnings throughout working career, including pension-credited periods.³
• Maximum amount: no specification in law regarding fixed maximum pension; maximum pension amount is levelled due to the calculation method.
• Minimum amount: pension-tested benefit for persons with a pension below the minimum statutory pension level (HUF 28,500 in 2020).

Factors for benefit calculation

• Benefit amount depends on the insurance period and is expressed as a percentage of the revalued net average monthly income of the individual earned since 1988: 33% for the first 10 years of the insurance period; the benefit amount for the rest of the insurance periods increases in the following way: 2% for each insurance year between the 11^th and the 25^th year, 1% for each insurance year between the 26^th and the 36^th year, 1.5% for each insurance year between the 36^th and the 40^th year, 2% for each insurance year after the 40^th year.
• For persons with an insurance period of 50 years, additional insurance years do not increase the amount of the benefit.
• If the average monthly income is over HUF 372,000: 90% of the amount between HUF 372,001 and HUF 421,000 is taken into account as income, as well as 80% of any amount above HUF 421,000.
• As of 2021, a 13^th-month payment is being introduced gradually (from 25% of the monthly benefit amount in 2021 to 100% from 2024 onward).
• Adjustments: yearly adjustment of pension value accounting for annual changes in consumer prices and the net average monthly earnings.

Taxation and social security contributions

• Benefits are not subject to taxation.
• Pension benefits are not subject to social security contributions.