Regarding the sustainability of the current pay-as-you-go pension system, many different issues can be brought up. It is unsustainable; therefore, a point system described at the professional conference of the Hungarian Economic Society would change it so that the age limit and amount of the pension would also depend on the number of children raised by the individual.
The German pension calculation, for example, is based on the system of pension points introduced in 2001, in contrast to the Hungarian one currently in place. After each insurance year, each insured person receives a pension point that reflects their relative earnings in that year. The monthly amount of the pension is determined using the following formula: the number of personal pension points is multiplied by a bonus-malus multiplier, then the current pension value, and then by a multiplier depending on the type of pension.
Regarding the sustainability of the current pay-as-you-go pension system, the rapporteurs of the conference highlighted six different issues, wrote index.hu. They are the following:
- The system is based on the ability of the next generation to finance the elderly, although the explanation of the creators was that it is based on the ability to pay contributions of the present generation.
- Pensions are backed by implicit public debt. Although the amount that the state borrows as a loan to pay pensions does not appear in nominal terms, it still exists.
- In this system, the elements of insurance and solidarity are mixed.
- Once the state has been put behind the system as a guarantor, there is virtually no reserve behind the system.
- It assumes a steady increase in the population, although, in theory, a decrease in the population should not be a problem due to an increase in productivity.
- The system has practically undermined itself, given that it was not financially worthwhile to have a child.
Said József Banyár, a professor at the Corvinus University of Budapest, in his presentation on the topic.
Erzsébet Kovács, who also teaches at Corvinus, described the process with statistics, according to which while the proportion of women of childbearing age decreased spectacularly between 1999 and 2019, the proportion of women over the age of fifty and pensioners increased by about the same ratio. So contributions would have to be significantly increased to cover pensions.
Another serious problem is that the average number of children per family is only increasing in a minimal amount, much less than the required for future stability.
Although the system is based on contributions paid by active workers, it sees the child as a public good, which is a fundamental flaw.
If they consider who contributes to the maintenance of the pension system by giving birth to multiple children, influencing the amount of the allocated pension in proportion, that could be a possible solution that may be attempted in the future. This way, the ultimate financier would be practically the child.
Under the system mentioned before, the pension amount would be calculated by taking account of the number of pensions depending on the number of children raised.
As a consequence of the system, the pensions of the childless would be much lower, or their retirement age would have to be raised. People would pay a certain amount from the moment they start work, and from this, they would finance the period between the normal and the raised retirement age for the childless.
This could potentially prevent the further spread of the “problem group” that makes the current pension system unsustainable.
Source: index.hu; vg.hu