09 January 2012

IPE: Hungarian government accuses pension funds of fraudulent practices

Gabriella Selmeczi, the government's 'pension protection' commissioner, said investigators had concluded that funds had failed to generate sufficient yield over their 14 years of operation. Selmeczi, a long-serving MP for the governing populist conservative Fidesz party, said investigators had identified "several billion forints" in missing yields.

It is unclear whether the accusations will result in formal charges being brought. Selmeczi, who is also Fidesz's senior press spokeswoman, said last year when the investigation into the pension funds was announced that the pension funds had "gambled away people's pensions on the stock market". The charges are the latest in a saga that has seen all but 3 per cent of the country's €10 billion funded pension pillar liquidated and transferred back to the state Treasury.

Hungary's government first targeted pension funds in early 2010, shortly after breaking with an IMF-led support programme. Faced with a funding gap, György Matolcsy, the national economy minister, said individuals who refused to opt back – together with their assets – into the state pension pillar, would be opting out of the "system of solidarity" on which future pension payments depended, and would therefore lose their entitlement to a state pension.

Faced with what many regarded as blackmail, the vast majority of members in the mandatory second pillar system did so, handing the government a one-time €10 billion windfall. Before Christmas, the government announced that, in future, the contributions even of those 100,000 members who had opted to remain within the second pillar would be paid directly into the state treasury, consigning the remaining second pillar funds to a slow decline, deprived of any further income.

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