Hungarian Association of Pension and Health Care Funds

How do they work?

How do they work?

Establishing a fund membership

Anyone over the age of 16 who indicates their intention to join by filling out an entry form can be a member of a voluntary pension fund. By accepting the letter of intent of the fund, the legal fund membership is established. The membership certificate certifies the opening of the pension account. Together with the establishment of the legal membership, the fund opens an individual account in which the member collects savings (pension account).

Some funds already offer the possibility to open an account online, with its help, personal administration can be completely avoided and new members can start opening a pension fund account even while sitting on the couch.


The pension fund account

Voluntary pension fund savings are collected on an individual account, opened for the benefit of the member. The savings in the individual account equal the savings made through payments and their investment. A payment made by a member is called a membership fee, and a payment made by an employer is called a membership fee contribution. The employer, an other person or organization may also increase the savings of a given member with financial support and donations. Pension fund savings are also supported by the state. The support is payment-based: the amount of the membership fee paid by the member and the employer is supported by the state, the rate of which is 20% of the payment, up to a maximum of 150 000 HUF per year.

What happens to the savings?

The voluntary pension fund invests the amounts paid into the individual account and credits the return on the investment to the individual account. Smaller funds generally stay with the single-portfolio system, while larger funds typically offer more portfolios. These funds operate 2-6 selectable portfolios based on the number of members and their assets. The so-called optional portfolio system is where the member can decide in which portfolio they want to manage their savings.

Investments in portfolios are regulated by law: funds may invest in government bonds, stocks, bonds and real estate, among others. Each portfolio represents a different level of investment risk, with different out-turns: a low-risk portfolio has a lower but more secure out-turn, while a higher-risk portfolio promises a higher out-turn. More risky portfolios are more likely to have periods when out-turns are negative, but in the long run they can save a much larger amount.

In the Optional Portfolio System, each portfolio is designed so that each fund member can find an investment opportunity, for which they can take the risk. However, as you approach the retirement age, it is advisable to choose an increasingly less risky portfolio. The net return is credited to the individual accounts.


Pension supplementary services

A person who has reached the retirement age specified in the Voluntary Fund Act may request a payment from the fund, this payment is a supplementary pension service. The range of services is wide: lump sum payment at the expense of the total balance; fund allowances; annuity purchased from an insurance company; a combination of a lump sum payment and an allowance.

Initially, applying for the service and the disbursement of it led to the termination of the membership, but from 2016 it is possible to request a service payment while maintaining the membership, and even continuing to pay the membership fee. This is a flexible solution that benefits members working while being pensioners. Upon the payment of the last service, the member’s membership will be terminated.