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Government caveat threatens Hungary's private pension schemes - fund operator

BUDAPEST (Reuters) - Hungary’s mandatory private pension funds could be eliminated by the end of this year if a new government measure that requires a highly active membership is passed, the largest fund’s operator told Reuters.

Hungary's Prime Minister Viktor Orban arrives at an European Union leaders summit in Brussels October 24, 2014. REUTERS/Francois Lenoir

The government has already been tapping the private schemes since 2010 for 360 billion forints (0.96 billion pounds) a year to cut the state budget deficit.

“The modification of the law on private pensions and pension funds... practically means all private pension funds operating in Hungary will have to close down,” market-leading Horizont Private Pension Fund told Reuters in an emailed statement on Monday.

Prime Minister Viktor Orban’s government has often come into conflict with business lobbies and the European Union over measures including windfall taxes, constitutional changes and a strict media law.

It announced plans on Friday to require private pension schemes to show at least 70 percent of members have been paying monthly fees in the past six months or to close down. The law could take effect on Jan. 1.

Mandatory private funds, running alongside the state pension system and elective private pension funds, were central to a 1997 scheme to reduce state spending.

But Orban’s government went on to nationalise more than 90 percent of their assets, worth about $12 billion. Members could declare an intent to keep their savings with the funds, but few did so.

Typically only about 10 percent of members pay a monthly fee at mandatory private pension funds.

“It is probably clear to the lawmakers that none of the funds that currently operate satisfy this criterion,” Horizont said.

Horizont said a survey showed 95 percent of clients who opted to keep their mandatory private accounts were happy with that decision and would not opt back into the state system.

“These people are automatically forced back into the social security system and their wealth is transferred to the state budget,” Horizont said. “All that based on a law that is retroactive, so impossible to adjust to.”

Horizont said the four operating mandatory funds had about 200 billion forints in assets which could now go to the state.

The government said it wanted to ensure nobody is left without pension coverage.

“In the last few years only about 60,000 people (out of 10 million Hungarians) were left in mandatory private pension funds, and even they don’t pay monthly contributions,” Varga told public radio Kossuth on Monday.

Reporting by Marton Dunai; Editing by Ruth Pitchford