2006年-世界发展银行全球_Competition_and_Performance_in_the_Hungarian_Second_Pillar_80页_697kb

Summary of "COMPETITION AND PERFORMANCE IN THE HUNGARIAN SECOND PILLAR"

Core Content

The paper evaluates the performance and regulatory framework of the Hungarian Second Pillar pension system, which was introduced as part of the 1997 pension reform. It highlights the mixed results of the system since its inception and identifies key challenges in its development and management.

Main Findings

• Structure of the Second Pillar:

  • Launched in 1998, the Second Pillar was designed as a mandatory system with a hybrid structure, including financial institutions, large employers, and independent funds.
  • As of 2004, 18 MPFs were operating, managing 2.4 million members (over half of the labor force) and assets equal to 4% of GDP.
  • The market is highly concentrated, with the six largest MPFs accounting for over 80% of total assets.
  • Financial groups dominate the market, holding 87% of assets, while employer-sponsored and independent funds hold smaller shares (around 5% and 8%, respectively).
  • The system has a segmented structure, with limited competition and high fees in some funds.

• Performance of the Second Pillar:

  • Growth: Membership grew rapidly in the first years but stagnated in 2001–2002 due to lack of support for the reform. It resumed growth after the return of the socialist government in 2002.
  • Assets: Second pillar assets reached 4% of GDP in 2004, but growth was slower than initially projected.
  • Contribution Rate: The contribution rate was initially set at 6%, increased to 7% in 2002, and to 8% in 2004.
  • Contribution Base: The base of contributions remained around 10–11% of GDP until 2004, when it increased to 13.2% of GDP.
  • GDP Growth: The growth of the second pillar was negatively affected by GDP growth during the period, which was relatively low.
  • Asset Returns: The system has experienced modest returns, with net rates of return fluctuating and often below expectations, contributing to slower asset growth.
  • Fees: Operating and asset management fees have been increasing steadily, with total fees as a share of contributions reaching 1.06% in 2004. These fees have not translated into significant switching behavior among members.

• Challenges and Deficiencies:

  • The system's performance has been hindered by weak support for the reform, conservative portfolio allocation, and a lack of competition.
  • The regulatory framework for the accumulation phase has not effectively promoted transparency, comparability, or competition.
  • The payout phase requires a major overhaul before the first cohort of workers retires, as current regulations are not sufficient to ensure long-term sustainability and fairness.
  • The presence of low-cost funds has not led to significant cost reduction or member migration, due to lack of accessible and comparable information on returns and fees.
  • Revenue collection mechanisms are inefficient, with individual MPFs managing many employers, including SMEs, and a need for a centralized collection system.

Key Recommendations

• Accumulation Phase:

  • Promote transparency and comparability of information on costs and investment performance.
  • Facilitate migration to lower-cost funds.
  • Encourage competition among MPFs to reduce fees and improve performance.
  • Address regulatory issues such as licensing, governance, investment regulation, and disclosure rules.

• Payout Phase:

  • Overhaul the regulatory framework to ensure adequacy and fairness for retirees.
  • Improve auditing and accounting standards to ensure accurate valuation of assets.
  • Enhance disclosure rules to provide better information for retirees.

• System-Wide Reforms:

  • Develop new financial instruments to improve returns.
  • Address tax evasion to recover the covered wage bill to levels seen in the late 1980s (around 33–34% of GDP).
  • Strengthen the role of the Hungarian Financial Supervisory Authority to ensure a competitive and low-cost equilibrium.

Conclusion

The Hungarian Second Pillar has shown mixed performance since its introduction in 1998, with significant growth in assets and membership, but also persistent issues with cost structure, market segmentation, and regulatory effectiveness. The system's hybrid nature and the dominance of financial groups have limited competition and transparency. To ensure long-term sustainability and better outcomes for retirees, the paper calls for comprehensive regulatory reforms in both the accumulation and payout phases, as well as efforts to promote financial instrument development and address inefficiencies in the system.