Hungarians Seize Chances For Early Retirement With High Pensions

The good news is that pensions in Hungary are relatively high in European terms, while the people do not believe this will remain this way for very long.

This is coupled with a very low willingness to save, which unfortunately tends to emerge rather late, around the age of 50. It makes the situation even worse that Hungarians are very little aware of the available savings products, AXA said.

The representative survey, which involved 26 countries last year, was the first carried out in Hungary in July 2007 and involved 300 economically active workers and 300 pensioners. The researchers wanted to find out how people prepare for their retirement, how they feel about being retired and whether they start saving for retirement on time. The survey allows for international comparison and the findings are noteworthy in a Hungarian perspective as well.

In Hungary, two thirds of the economically active population retire prior to the official age of retirement and 80% of the workers retire voluntarily - according to a GFK survey commissioned by the AXA Group.

This extraordinarily high ratio of early retirements puts Hungary to the 2nd worst place among the surveyed 26 countries, in contrast to the average of 50% in the EU and Central and Eastern Europe. 

The ratio of those who retire and receive a pension larger than or the same as their former salary is the highest in Hungary, nearly 50%, against 38% in Central Europe and 32% in Europe.

It is also true, however, that economically active Hungarians are not so much optimistic about anymore, given their expectations on their future pension are somewhere around the European average. They apparently sense already that the favourable situation (the high level of replacement rate) cannot last forever. Replacement rate is the ratio of an individual's (or a given population's (average) pension in a given time period and the (average) income in a given time period. 

According to one finding of the survey, Hungarians tend to be much more pessimistic about their future retired life than the European average. Many of them associate retirement with poverty, illness and loneliness and little more than 50% of them think positively about this age, associating retirement mainly with free time, travelling and serenity.

39% of the active respondents plan to continue work after the retiring age, which is less than the European average. Despite this, only around 10% of them actually earn money while being a pensioner, which is roughly the same as the European average.

It is clear from the survey, which is representative for the entire population, that very few Hungarians, only about 4% of the economically active workers support the idea of increasing the age of retirement. The Central European average in this respect is 11%, and this figure is even higher in countries where the population has already faced the consequences of aging societies.

While most of the active workers in Europe plan to spend their retired age travelling, being with the family and doing other free time activities, Hungarian pensioners, mainly due to their limited financial resources, spend most of their time doing work round the house like gardening or DIY, looking after the family and continuing work.

Blurred ideas

It turns out from the international survey that 29% of the respondents in Hungary have an idea about how much pension they will get, which is in line with the Central European average. The younger the respondent, the lower this ratio is. Only 15% of those younger than 45 years of age are aware of the expected amount of their pension. 

Although, as a result of increments in pension benefits, about a third of the Hungarian pensioners draw a monthly pension higher than their former salary, about HUF 27,000 is missing from the HUF 100,000, which is sufficient for a pensioner's living expenses up to necessary minimum per month.

The situation is just the opposite in many countries in a European comparison because in many countries pensioners are able to put aside money from their pension for savings. In the CEE region this is also true of the Czechs and the situation in Slovakia and Poland is more favourable than the 27% deficit in Hungary.

The deficit that pensioners have to cope with in Slovakia and Poland respectively is only 5% and 16% of the amount needed for a living.

The survey findings point out that, despite the uncertainty and the lower standard of living in retirement which is anticipated by about 50% of the people, less than one third of Hungarians take mindful care of their pensions during the active years at work, as opposed to the 52% average in the CEE region.

Responsible and conscious self-reliance

While many people in Western Europe start preparing financially for old age in the middle of their twenties, at the time of their first job, marriage or the birth of their first child, taking the advice of financial experts and on the impact of tax reforms, then most Hungarians only realise the significance of preparation for old age only when they turn 50, or when they experience serious financial difficulty, an illness or an accident.

The of conscious action begins to be taken three years later than the CEE and five years later than the European average, as late as around the age of 38.

Those who have some savings say that they usually put aside a relatively small amount of their income, especially in comparison to the European average. This can partly be a consequence of low salaries, and partly because most respondents regard compulsory pension payments as a government tax rather than saving. 

There is a huge uncertainty regarding the ways of pension savings. Nearly twice as many Hungarians as the European average are unaware of such basic concepts as risk, yield and saving period so they cannot choose between saving instruments offering high yield for high risk and relatively low yield for balanced risk. 

In summary, it is clear from the survey that very few Hungarians are optimistic about their old age in retirement. Both the economically active respondents and the pensioners are of the opinion that women tend to be more prepared for retirement both psychologically and financially and they tend to live a healthier and more active retired life."

Source: Portfolio Online Fianancial Journal