August 9th, 2011

Pension funds deny huge losses over past few years

The government’s calculations suggesting that Hungary’s private pension funds had failed to realise gains totalling 700 billion forints (EUR 2.5bn) over the past few years are incorrect, pension fund federation Stability said in a statement on Monday.

Stability responded to remarks by Gabriella Selmeczi, the prime minister’s commissioner, made earlier in the day, and said that she had used “inaccurate figures and drawn mistaken conclusions”.

If payments had been used to buy state bonds for the past 13 years, they would have yielded 700 billion forints by the end of 2010, Selmeczi said. On the other hand, Stability said that that total could only have been realised in an ideal case – if payments had not varied over the years, and if the maturity index of long-term bonds (MAXC) had always gone up. The statement also added that nearly 160,000 private pension fund members had returned to the state system between 1998 and 2010 – another factor which further increases the inaccuracy of Selmeczi’s estimates.

Selmeczi had briefed journalists on the results so far of an investigation into the operation of the private pension funds, and said that if one percent of GDP had not been ploughed into the mandatory private pension funds each year since 1998, Hungary’s public debt would now be 70 percent of GDP rather than 80 percent.

Selmeczi said that 150 billion forints (EUR 546m) had been consumed by operational costs over the past 13 years, a sum she described as a “horrible amount”.

She said had the law on mandatory private pensions not been put on the statute books 13 years ago, the value of the stock of pension assets in Hungary would now be over 700 billion forints (EUR 2.5bn) bigger. Taking into account the operational costs, this figure would be 850 billion (EUR 3bn), she added.

Around 3 million former private pension holders who have returned to the state system are currently receiving payments from pension companies based on profits made on capital invested over the period. The government is examining why former private pension holders are getting a mere fraction of the sums they could have reasonably expected.

The value of private pension assets totalled 3.16 trillion forints (EUR 11.6bn) at the end of March, according to a preliminary government audit outlined by Selmeczi. Had income from membership fees been invested in government bonds, this portfolio should now be worth 3.86 trillion forints (EUR 14.1bn), based on a calculation of average yields over the period, she said.

Selmeczi noted if the public debt had been lower then the cost of servicing the debt would be correspondingly lower too.

  • Paul

    The fact that “Hungary’s finance market regulator Pszaf only found anomalies in the yield calculations of 1,500 people, which equals 0.05% of the fund system’s membership” makes me think the regime is struggling here.

    All depends on whom you trust the most…

    But as long as Orban keeps his thieving mitts off our retirement fund then they can tell unsubstantiated porkies to their heart’s content

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