Old age

19 October 2017.

1.1. Eligibility criterion: retirement age  

Changes in the 1997-2011 period

In Hungary, the retirement age had remained unchanged for a long period of time, fixed at 60 years for men and 55 years for women. In order to adjust to the long term demographic changes and to the sustain continuous financing capacity of the pension system, in the first half of the 1990s a decision to gradually increase the retirement age and for harmonizing the retirement age of both sexes was adopted. According to this decision the retirement age for men increased by one year in 1998 and 2000 respectively, thus reaching 62 years. The retirement age of women increased by one year every second year until 2008. For example, women born in 1942 could retire at the age of 57, those born in 1943 at 58, and those born in 1944 at the age of 59. The progress of increasing the retirement age for women continued accordingly: the retirement age of 62 first applies to those born in 1947.

At the same time, in addition to the increase in the retirement age, so-called flexible retirement was introduced. In the framework of flexible retirement, so-called advanced pension was accessible for those who had completed a long service time. In order to be eligible for early retirement, men had to be 60 years old, from the time when the new system was introduced to 2011. Until 2000 inclusively, the age criterion for advanced pension was 55 years of age for women which increased to 56 in 2001 and to 57 in 2003. As of 2009 women’s advanced age increased to 59 years of age, which applied to for those born in 1952. 

As of 2008, another eligibility criterion for advanced pension and advanced pension with reduced sum was defined by the Act: claimants must terminate their legal relationship serving as the basis for insurance. (Nevertheless, they can establish a new legal relationship as pensioners.) Since January 1, 2010, terminating the legal relationship as basis for insurance is not only the eligibility criterion regarding those who would claim for advanced pension, but also in cases of old-age pension claimed upon reaching retirement age or above. for the same holds true those having legal relationship in an EEA Member State or in a country under the jurisdiction of a bilateral social security agreement.

In the first half of 2009, the Parliament adopted an act on the gradual increase of the retirement age from 62 to 65 years of age and that of the same eligibility criterion of advanced pension up to 63 years of age with a commencement in 2012. As a main rule, increase refers to an increase by half a year for every birth year group. The reason for adopting additional, transitional provisions was that the women’s advanced retirement age had not reached 60 years of age ( it was raised from 57 to 59 years of age in 2009).

 The respective age-groups are affected by the increase in the retirement age as follows.

The retirement age of those born in 1952 is 62 years and 183 days, 63 years for those born in 1953, 63 years and 183 days for those born in 1954, 64 years for those born in 1955, 64 years and 183 days for those born in 1956, and 65 years for those born in 1957 or later. This applies for both genders.

Old age pension for women with an eligibility period of at least 40 years

The only permanently existing, systematic exeption of the new regulations that increased the retirement age from 62 to 65 and almost fully terminated the possibility of early retirement has been the old age pension for women with an eligibility period of at least 40 years. This old age pension due to women without any specific age criteria based on 40 years of eligibility period, which is to recognize women’s dual performance troughout a lifetime: at the workplace and within the family concurrently. In acconrdance with this dual performance the eligibility period refers to a narrower category than the generally applied term of service time as only the enabling period of performing gainful activity and the disbursement period of child raising benefits are accepted under this term. As a further criterion, the exact time of enabling period of performing gainful activity within the at least 40 years of eligibility period may not be less than 32 years (in cases when 5 or more children are rised, this condition may be softened to 25 years).

Regulations effective from 2012

The statutory amendment adopted by the Parliament at the end of 2011 with effect from 2012 has not affected the increase in retirement age, but fundamentally altered the eligibility criteria of pensions prior to retirement age. As it offered the award of old-age pensions only for those above the retirement age, it seriously ’overwrote’ the formerly projected mechanism of gradual aggravation of early retirement. In lieu of aggravation a set of regulations has been established by which early retirement had been almost utterly eliminated.

The theoretical starting point of the changes of 2012 is that pensions prior to retirement age cannot be claimed as of 2012 onwards. The only permanently existing, systematic exception has been the award of old-age pension regardless of any age criteria for women with an eligibility period of at least 40 years, which was introduced in 2011. Eligibility period refers to a narrower category than the generally applied term of service time in the pension insurance system, as only the enabling period of performing gainful activity and the disbursement period of child raising benefits are accepted under this term.  As a further criterion, the exact time of enabling period of performing gainful activity within the at least 40 years of eligibility period may not be less than 32 years. (In cases when 5 or more children are raised, this condition may be softened to 25 years.) The new retirement alternative is a reward for women who had worked all their active lives and had mostly raised children as well.

Early retirement pensions awarded before 2012 for those under the retirement age on January 1, 2012 were transformed into social benefits – for a transitional period until reaching the retirement age. Their amounts have not been altered and they remained under the scope of regular annual pension increase. However, they cannot be deemed as pensioners until reaching the retirement age, i.e. they are not entitled to certain pensioners’ privileges. Early retirement pensions had been awarded in the form of advanced pensions, early retirement pensions, early retirement pensions due to hazardous working conditions, miners’ pensions, artists’ pensions and some other special early retirement benefits prior to 2012. It is worth mentioning the transition of service pensions for professionals of military organizations awarded under especially favorable conditions and – as a main rule – the significant decrease in their amounts until reaching the retirement age.

When reaching the retirement age, these so-called benefits prior to retirement age will be ‘reverted into old-age pensions. Provided that the beneficiary has been performing gainful activity during the disbursement of such social benefit for at least one year, they become entitled to have their pensions awarded again, their newly gained service time and income also taken into account instead of getting back the ‘old’ (but increased) pension amount. (If it is more agreeable, certainly.)

Under a determined and increasingly reduced scope and with transitional effect the new regulation enables the people involved to claim for these newly established social benefits from 2012 as well. (Thus, these benefits may not only be awarded as those transformed from benefits awarded before 2012, but also as newly awarded benefits.) In the future, two special types of benefits i.e. the temporary miners’ annuity and life annuity for ballet dancers, which involve only a small amount of people, may be awarded without time restrictions. 

The changes of 2012 – except for the special alternative retirement for women – guarantee that the age center (i.e. the exact age reached at retirement) of old-age retirement approaches or even meets the retirement age. In essence, this age center had been equivalent to the age criterion of advanced pension so far. As a result, measures facilitate the long-term sustainability of the pension system to a great extent and, at the same time, terminate the diverse former varieties of early retirement alternatives. 

1.2. Eligibility criterion: service time

In the first approach, service time is equivalent to insurance periods. According to general rules service time can be acquired by establishing various legal relationships with the purpose of working (i.e. performing gainful activity). Moreover, service time includes the disbursement period of child raising or unemployment benefits, and also periods covered by agreements concluded with the purpose of acquiring service time. As a basic principle, only insurance periods for which pension contribution has been paid can be recognized as service time. However, the Pensions Act in force as of January 1, 1998, in view of acknowledging the rights obtained, renders it possible to deem certain periods acquired prior to January 1, 1998 as service time, even if no pension contribution was paid over such periods. Such periods are, first of all, those spent in higher education and compulsory military service.

Service time also includes the disbursement period of child care leave (GYES), introduced on January 1, 1968. The actually accumulated service time of mothers whose children were born in the years preceding the introduction of child care leave must be increased by 365 days for every child born. This measure serves the elimination of disadvantages arising from law.

In Hungary, one of the eligibility criteria of old-age pension is acquiring at least 15 years of service time. Providing that service time reaches 20 years, the awarding pension will be under the safeguarding net of old-age pension minimum. It is experienced though that almost 100% of the newly awarded old-age pensions have a higher amount than that of the pension minimum, thus it is not required to apply the minimum rule.

1.3. Calculating the pension amount

The pension amount is calculated as a percentage of the average income (salary) as basis for pension contributions, according to a scale determined by length of service (insurance).

The average salary as basis for pension is to be calculated – as a general rule – from salaries and incomes received from January 1, 1988 to the date of retirement. The period of income to be calculated for pension purposes is extended annually by one year, so pensions are to be progressively calculated on the basis of salaries over a whole lifetime.

The amount of average income shall be determined on the basis of the net amount of incomes gained in each year. Thus, gross incomes shall be deducted by the proportion of individual contribution and personal income tax with effect in the relevant year of gaining income. (In the course of calculation personal income tax shall be determined with regard to the income deducted by individual contribution – differently as pursuant to general tax regulations.

When assessing average income, net incomes of years prior to retirement are valorised. It means that incomes gained during the second year prior to retirement and those gained before that shall be multiplied to the income level of the calendar year prior to retirement on the basis of the growth in national average net income.

The amount of pensions when having 15 years’ service (insurance) time amounts to 43% of average income calculated for pension purposes. In cases where a qualifying period is more than 15 years the ratio increases by two percentage points a year up to 25 years’ service (insurance) time when reaching 63%; thereafter it increases by 1 percentage point a year up to 36 years’ service time, reaching 74 % after 36 years of service; if the length of service is more than 36 years, there is an increase of 1.5 percentage point, and with more than 40 years of service the rate increases by 2 % a year. Thus, with 50 years of service, the amount of pension equals to the full amount of the average income, even though further years of service do not increase the amount of benefit.

In the Hungarian pension scheme, there is a so-called minimum pension that occurs when awarding pensions. This minimum pension applies only to a full pension (acquired after at least 20 years of service). Its amount is determined annually; in 2017 the smallest amount of old-age pension is HUF 28.500. However if the average monthly income as basis for pension is so low that it does not reach the amount of a minimum pension, the pension amount will be 100% of average monthly income.

Persons who have 20 years of service required for old-age pensions but do not claim for pension when reaching the relevant retirement age and acquire an extra service time of at least 30 days, are entitled to pension increase (bonus) which amounts to 0,5% of the awarded pension per each 30 days. 

As of 1 April 2007 those working while retired shall also pay pension contributions after their incomes. As an offset, ex-officio, pensions must be raised by 0.5 percentage – i.e. by 1/12 – of the average monthly amount of the salary or income serving as the basis for calculating the pension contribution. It equals therefore to the 1/2400 of the annual contribution basis.

The disbursement of old-age pensions and early retirement pensions transformed into social benefits of those under the retirement age shall be suspended, if the income gained apart from the pension in the same calendar year exceeds an amount eighteen times the minimum wage. Suspension lasts up to the end of the relevant calendar year, whereas disbursement of the benefit restarts at the beginning of the following year. (In case of benefits transformed from pensions awarded prior to 1 January 2008, this rule applies to incomes gained since 1 July 2012 onwards. After reaching retirement age, gaining income simultaneously with the receipt of pensions are not sanctioned.

As of 1 January 2013 those who recive old age pension and work in the public sector at the same time the disbursement of their pension shall be suspended up to the end of legal relationship of employment.

Pensions and benefits awarded from 2012 onwards are exempt from taxes.