The Hungarian pension system has a history of nearly a century. Similarly to many developed countries, after - and a consequence of - World War II the previous fully-funded system was converted into a pay-as-you-go system, which allowed for its standardisation, and by 1975 it gradually grew to cover all persons who had income from work. By the turn of the 1980?s and 1990's its problems became obvious, which was aggravated by the economic crisis that accompanied the change of the political regime (the country lost one-fifth of its gross national product in a short time), the unemployment that followed in its wake from which nearly complete generations ran away into early retirement while the number of contribution payers declined steeply. In the absence of an appropriate social net the pension system was forced to perform social tasks in the first half of the 1990's. The gradual reforms launched at the beginning of the 1990s served to ensure financial equilibrium, and on the other hand, were aimed at reducing the weight of the social-redistribution elements. In 1998 the pension system was changed into what is called a system of mixed funding; in addition to the pay-as-you-go social insurance pillar and a fully-funded second pillar appeared.

The first pillar

The first pillar of the pension system, the so-called social insurance pension system is a pay-as-you-go defined benefit scheme. Money to be paid as pensions is covered primarily by the pension insurance and pension contribution collected from employers and the insured (employees) to the Pension Insurance Fund (P Fund), but the P Fund is also given significant subsidies from the budget due to its deficit, while cover for more than two-thirds of pensions for the disabled is transferred by the Health Insurance Fund (H Fund) to the P Fund. (The underlying consideration is that loss of the ability to work prior to retirement age is a health care problem the cost of which should be borne by the H Fund until retirement age is reached.) In addition to pensions, the P Fund's manager, the National Pension Insurance Directorate (NPID) also disburses so-called regular social benefits in a pension system, whose funding is provided by the central budget.
The social insurance pension system provides pensions for pensioners in their own right and based on rights acquired by relatives. Pensions in own right are old age pension, disability pension and pension for disability from accident. Pensions in the right of the relative are surviving spouse?s pension, orphan?s allowance, parent?s pension and pensions for relatives involved in accidents. The pension of those entitled to several types of pensions is determined taking into account the rules of what is called joint payment, and are not simply added up. The exception to this is the new surviving spouse's pension determined in addition to pension in the person's own right.