Information on pensions in Hungary

Robert Kemkers,  Sunday, 3 June 2018

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Pension in Hungary

I regularly receive a question from Dutch and Belgian permanent residents in Hungary about a letter that they find incomprehensible. There is a lot of text in small print, personal data, and numbers. The message comes from the 'Megyei Kormányhivatal' of the province concerned and the subject is: 'Nyugdíjbiztosítási hatósági nyilvántartásban történő bejegyzés.' After translation assistance from a Hungarian neighbor, dictionary or Google, it turns out that this concerns registration with the service responsible for paying pensions in Hungary. This leads me, this time, to write something about pensions in Hungary and, in particular, about the extent to which foreigners are entitled to them.

Letter from Hungarian Pension Fund

The letter was sent by the Pensions Department of the Provincial Executive Office. They inform the addressee that he or she is registered with the 'Országos Nyugdíjbiztosítási (Fő)igazgatóság', or Hungarian National Pension Fund. This service is responsible for registering and accruing all pensions in Hungary, both old-age and disability pensions, and so on. This is carried out by another service, the 'Nyugdíjfolyósítósító Igazgatóság', which is part of the 'Magyar Államkincstár.' This letter, despite being sent by registered mail, is not important for foreign recipients. It is only a message that one is (automatically) registered with the State pension fund. It is also after many years still wholly a mystery to me why some people get this letter, and many others do not. Nobody has usually asked for it. But it does not give rise to any obligations either. In principle, therefore, the letter can be thrown away, unless you work in Hungary and pay (pension) contributions.

Hungarian pension scheme

The Hungarian pension system is quite simple. Any Hungarian citizen living and working in Hungary is, in principle, entitled to a state pension. Foreign nationals who work in Hungary and pay pension contributions also build up pension rights. The system already existed, in another form, under the Socialist Hungarian People's Republic. At the time, everyone was entitled to a pension, and the working class paid the premium. Pensions were meager because the cost of daily living was also low and many provisions for pensioners were free of charge. This is different nowadays, but the consequence is still that many older pensioners have only a relatively small pension, which is still based on pension accrual during the years under socialism. It's is one of the reasons why pensioners and (also foreign) people over 65 are entitled to free use of public transport!

The current pension benefit in Hungary is not a fixed amount, because the amount is based on pension accrual during working life. However, the contributions and payments are not made through private pension funds or insurance companies, but all through the State pension fund. So, in fact, there is one national pension system, something that many more countries have. Every worker in Hungary now pays, in principle, 10% of his gross monthly salary in pension contributions. For people who temporarily do not participate actively in the labor market, for example, because they are on maternity leave, are (partially) unfit for work, follow (further) training or work for the municipal park service, the national government pays the pension contributions. This is partly financed by the employer's contributions, which are levied above the gross wage; a separate employer's contribution is therefore not included in the pension accrual. Until a few years ago, there was also a system of voluntary, private pension funds for supplementary pensions, but these were largely abolished during the crisis, partly because of the low coverage ratio and high risks. Many Hungarians lost confidence at the time and turned their backs massively on such pension funds, most of whom were integrated into the national pension system at the time.

Pensionable age

The retirement age has been raised in Hungary in recent years, partly because of increased life expectancy. The retirement age for men and women has now been brought into line and has been raised from 60 to 62 in recent years and will rise to 65 from 2022; today it is 64 for those who retire between now and 2022. In fact, there hasn't been many protests against this increase, and the vast majority see the need for it in the light of the rise in life expectancy.

For the time being, the age remains at 65. This is lower than in the Netherlands, but it must be realised This is lower than in some Western European countries, but it should be borne in mind that average life expectancy in Hungary, particularly for men, lags far behind that in Western Europe. The rule that people automatically retire with (early) retirement after 40 years of service has now been abolished, although there are a few special schemes for certain professional groups.

Also, another condition for receiving a pension is that one has to have paid social security contributions in Hungary for at least 20 years; those who have built up contributions between 15 and 20 years receive a reduced pension benefit. The benefits are always based on a kind of average of the salary earned.

Supplementary insurances

In addition to the previous system, there is the possibility to take out private insurance using a kind of annuity policy, so that one receives an extra benefit when one retires or reaches a certain age. Usually, these insurances also pay out in case of incapacity for work, death, and other unforeseen circumstances. There are tax advantages for saving, both for employees and employers. Some employers try to recruit and retain staff by doing this, but in practice, not much use is made of it, except by the self-employed and entrepreneurs, who often have a pension gap in the future, because they only pay 10% over a minimum wage of contribution. There is a lot of publicity in the media and the letterbox for such pension insurances, especially by banks and insurance companies, but the average Hungarian is not interested; he lives in the now and thinks that it is not sure that he will ever reach retirement age.
The government tries to make people more aware of a significant drop in income, but in Hungary, people rely more on family solidarity, with the (grand)children helping the (grand)parents and vice versa.

Importance for Western Europeans

In short, the Hungarian pension system is not important to the average reader. There will be few readers who have paid at least 15, let alone 20 years of contributions in Hungary. If you have worked for several years, you can ask the provincial departments of the pension fund for a payment of the saved amount when you emigrate or when you reach retirement age. Anyone who also works abroad or builds up a pension there can apply to the accountant or employer for exemption from the payment of social security contributions.
The good news, however, is that, of course, people are entitled to a pension built up in their own country and, like Hungarian pensions, this is entirely exempt from tax in Hungary. One is therefore entitled to a gross payment! To this end, once people have deregistered from their own country, they must ask for an exemption from the payroll tax.

Robert Kemkers
Robert Kemkers - GeGe Real Estate






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