CMS Expert Guide to Pensions in Hungary

Hungary has a two-pillar system. The first pillar is a pay-as-you-go, earnings-related state pension system. The second pillar consists of voluntary mutual retirement savings funds and privately managed pension funds. Prior to November 2010, privately managed pension funds represented a third pillar, where participation was mandatory but as of November 2010, their members were essentially forced to transfer their savings to the state pension system. Contributions to these funds can now only be made on a voluntary basis. Occupational pension funds were introduced in 2008 as part of the second pillar. However, the only such fund ceased to exist in October 2024.

Private pension provision consists of (the previously mandatory) privately managed pension funds, voluntary pension funds and (in theory) occupational pension funds. The benefits provided in the second pillar are defined contribution.

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Privately managed pension funds may be established by employers, chambers, professional associations and bodies representing employers or employees, provided it is likely that membership will reach 2,000. They must be registered with the competent county court. Voluntary pension funds may be established by at least 15 private individuals and must also be registered with the competent county court. Occupational pension funds may be established by banks, insurance companies and investment companies, or by an employer individually or jointly with other employers.

All types of pension fund must apply to the National Bank of Hungary (which exercises the functions of the Hungarian Financial Supervisory Authority) (the “Regulator”) for an operating licence.

Since 1 July 2020, a uniform social security contribution of 18.5% of an employee’s gross salary has applied, of which 54% is allocated to the Pension Insurance Fund by the tax authority as the employee’s pension contribution. There is no mandatory level of contributions to privately managed or voluntary pension funds, although funds can set a minimum payment in their articles of association. There are likewise no mandatory contributions to occupational pension funds.

There is no minimum capital requirement for establishing privately managed or voluntary pension funds. However, they must submit a business plan when applying for an operating licence.aduated scale may remain in place for all employees already employed as of 1 January 2028.

7. What age are benefits taken?

Benefits may be taken from the pension funds once the official retirement age is reached, or earlier if the member qualifies for early retirement or certain other special benefits. The official retirement age is 65.

In the case of privately managed pension funds, members’ contributions cover both the services provided and the funds’ operating expenses. All members must make payments, with the minimum contribution determined by the fund bylaws.

Voluntary and occupational pension funds are subject to corporate income tax and must therefore request a tax number. Privately managed funds are not subject to corporate income tax but still require a tax number in order to meet their tax obligations, for example in relation to employees.

The compulsory contribution paid by employees to the state pension system, as well as the contributions voluntarily paid to privately managed pension funds by their members, are made from post-tax income. Any contributions paid by the employer to a privately managed fund, a voluntary pension fund or an occupational pension fund are taxed as employment income for the employee. Employer contributions are also subject to a 13% social contribution tax on the employer’s side.

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12. Are benefits taxed?

Benefits received from privately managed pension funds are tax exempt. Benefits received from voluntary or occupational pension funds are also tax exempt, provided that membership has been maintained for at least ten years prior to receiving payment.

Members of voluntary pension funds are entitled to a tax credit equal to 20% of their employee contributions in the relevant tax year, up to a maximum of approximately EUR 375. The tax credit is not reimbursed directly to the member; instead, the relevant amount is credited to the member’s pension fund account.

There are no limits on benefits or contributions made by employees. Employer contributions into a voluntary pension fund must follow uniform principles (i.e. the same amount or the same percentage of salary for every employee).

The Regulator is responsible for the supervision of all pension funds. Its powers include granting and revoking licences, imposing financial penalties, suspending benefit payments, the admission of new members, and requiring the liquidation of a fund.

Each fund must provide various documents (such as minutes of general meetings, agreements, and reports) to the Regulator both on a regular basis and upon request.

Privately managed pension funds must belong to a guarantee fund (‘Pénztárak Garancia Alapja’), which is not guaranteed by the state but holds reserves to cover losses. The law also permits voluntary pension funds to establish a guarantee or a general fund, neither of which is state guaranteed.

If any type of pension fund faces a threat of insolvency, the Regulator will review the fund’s business plan and rules and require the preparation of an action plan. In cases of serious or repeated breaches of the law, or non-compliance with the Regulator’s instructions, it may suspend the admission of new members, prohibit benefit payments, and suspend the operation of funds for up to 180 days. During such a suspension, payments may only be made, and investment activity carried out, with the Regulator’s consent, provided that the investments are (a) state securities issued by any EEA member state or (b) securities guaranteed by the Hungarian State. Ultimately, the Regulator may initiate the liquidation of the fund.

Anti-discrimination legislation is extensive in Hungary, and any discrimination by pension funds, such as between genders, is subject to the relevant anti-discrimination laws.

In a voluntary pension fund, a member may withdraw their funds after ten years (irrespective of whether membership is continued or terminated), even before reaching the retirement age. In occupational pension funds, a minimum period may apply and, if employment is terminated within this period, the member will receive no benefits unless otherwise provided in their contract.

Generally, members are entitled to participate in the decision-making process. In the case of voluntary pension funds, only a fund member may be nominated as a member of the board of directors. 

Only the members are entitled to take fundamental decisions concerning the fund, and in making these decisions, the members have equal rights.

Cross-border activity is only possible in the case of occupational pension funds. Such activity must be reported to the Regulator and must also comply with the legal requirements of the target country.

Switching between privately managed pension funds is allowed after six months of membership. The member must bear the cost of switching and notify the pension fund in advance. The yield guarantee on the fund may be lost. For members of voluntary pension funds, there are no restrictions on switching, but the cost is borne by the member. As the membership of an occupational pension fund is linked to the employment relationship, the member can only switch to another occupational pension fund if their employment is terminated. Further restrictions and conditions may be stipulated in the articles of association of both voluntary and occupational pension funds.