In a few days, retirees will receive a great gift.

We already know that the January pension payment is due on February 11. In practice, this means that the 2.5 million people now have access to their first pension increased in 2021 (3% more than last year) and to the first quarter of their 13-month pension, as the monthly allowance plus accumulates over 4 years. .

13-month pension? How?

Viktor Orbán was the first of the economic policy responses to the coronavirus crisis to announce the gradual reconstruction of the 13-month pension. A bill was passed in May. He stated that the profit will be rebuilt in four installments. The amount of the thirteenth monthly pension in the first year of its payment, in 2021, is 25 percent of the amount of the January pension benefits, in 2022 it is 50 percent and in 2023 it is 75 percent. In 2024, retirees will receive the full amount of their thirteenth monthly pension. Thereafter, each year the beneficiaries receive the amount of a month’s pension. The thirteenth monthly pension is paid to a pensioner who received the benefit for at least one day of the year prior to the current year and for January of the current year. The thirteenth monthly pension is granted to pensioners, that is, retirees, pensioners of relatives and cooperatives.

Even then, we calculated how much additional spending this budget means for the first year, which was later confirmed by the budget: this year’s additional spending is HUF 77 billion.

How much more will retirees get this way in 2021?

This year, retirees will receive several additional benefits, based on which it can be calculated what they cause at the average pension level:

1. The average pension amount of around HUF 140,000 in 2020 will increase to HUF 144,000 in 2021 due to the 3% base increase. According to our calculations, this means an additional surplus of HUF 50,000 for the older person receiving a medium pension.
2. A pension of one week (the first quarter of the benefit of the thirteenth month) means a bonus of HUF 36,000.
3. The pension premium will appear as a surplus of HUF 26,000 in November 2021. (If we accept what the government can do with the 4.5% GDP growth planned in the original 2021 budget, that amount, a total of HUF 53 billion plus budget spending).

With this, at the level of the average pension, an older person can earn 112 thousand florins better than in 2021.

All of this extra income may not even come at a better time for retirees. The relative income position of the elderly has deteriorated in recent years, while the higher inflation of pensioners has hit the purchasing power of this stratum harder, the epidemic also affects them more (they have to deal with a worse health, which costs more money). On the other hand, the government can also have economic policy objectives by paying additional revenue: spending this can happen in a critical year (during the recovery from the coronavirus crisis), that is, it can support the already fragile economic recovery.

What causes an extra month?

As the pension plus one month gradually rebuilds, the burden on the budget will increase. In 2022 it could cost more than 140 billion guilders, in 2023 it cost 230 billion guilders and in 2024 it cost at least 310 billion guilders.

By implication, this is also dramatically reflected in the long-term budget burden.

The following table, prepared by the Ministry of Finance (from the volume of the 2021 budget chapter), also illustrates that rebuilding the 13-month pension can significantly increase the value of pension expenditures relative to GDP, which is you can say that it is. As a result, budget sustainability is far from improving. In 2060, the state will redistribute 12.8% of Hungarian GDP to pension expenses.

Retirees seem to have been relatively losers in recent years (rising pension inflation, lower pension increases relative to real income, but remember: pensions often rise due to over-planned inflation), in light from which it is understandable that pensioners’ demands for higher benefits than the return of the 13-month pension fundamentally rewrites the sustainability of the system.

András Farkas is an expert in pensions In his previous writing on Portfolio, he pointed out the consequences of a government decision. In the four years between 2021 and 2024, “1 + 2 + 3 + 4 = 10 weeks would pay an additional pension, the state, which in turn would generate not only HUF 280 billion, but HUF 700 billion in additional expenses, and most of all a fixed, one billion (more precisely, due to the aging of society and the consequent increase in the number of pensioners, more than 300 billion) would be included in the pension fund as an additional item “. In addition, the expert lists the budgetary measures that do not improve the sustainability of the system (reduction of soco, exemption from tax exemptions).

András Farkas directly warned that the reconstruction plus the monthly pension will put a strain on the long-term pension fund. Therefore, the positive impact of the tough measures previously taken to ensure its stability could be nullified and the sustainable functioning of the pension system could be compromised.

The question is, what source of income can be contrasted with the expenses that increase due to the 13-month pension if the income of the pension fund decreases at the same time? Although the trend will only start to “deteriorate” dramatically after 2030, according to the graph above, due to the slow impact of a new pension policy measure, we should start thinking about future retirees now.

Cover image: Katalin Novák, Minister without Family Portfolio (front), will consult with Katalin Ábrahám (j) and Zsuzsanna Hulák (j2), members of the Council of Elders, at the Ministry of Human Resources on November 23, 2020. Source : MTI / Zoltán Máthé