1. The Hungarian Pension Reform: Do We Need an Extra Pillar? Fehér Csaba* Presented by: Kóbor Ádám* *Views expressed in this paper are those of the authors and do not necessarily represent the views or policies of the World Bank

2. What Does the 4th Pillar Mean? Private saving for pension outside the system of mutual pension insurance associations supported by tax policy Is it really one new element?

3. Structural Reform of 1997-98 Main Reasons for Reforms Reduce pension financing burden on the Government Recommendation from World Bank and other institutions Confidence in the Social Security System has declined Increase propensity to pay social security contributions Development of capital markets Diversification across service providers

4. Criteria of an Efficient Pension System Sufficient cushion against poverty for retired people Robustness – resistance against external shocks Liberalism: more decision power to the individuals

5. Critics of the Pension Reform Institutional Setup and Conflicts Mutual pension insurance associations Participants: owners vs. clients Entity: trustee of beneficiaries vs. service provider In-house service (all the risks born by beneficiaries) Trustee: outsource to external entities Restricted participation of beneficiaries Absolutism of mutual pension insurance associations Investment services for pension saving purposes should be offered by other institutions as well

6. Conclusion What could be an ideal system? A minimal (base level) pension funded by taxation Individual savings supported by tax-allowance Requirements Supportive Tax policy, instead of determining the mandatory rate of contributions Supervision Pension funds should act as Trustees, not service providers