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A possible solution to the reform of the mandatory pension system: point system and demography

Katalin Botos
University Professor, University of Szeged, Pázmány Péter Catholic University

József Botos
Economist, retired Assistant Professor, former Director General of the Central Administration of National Insurance
Published in: Public Finance Quarterly 2011/2 (p. 159-168.)

SUMMARY: It is obvious that the pension system needs long-term reforms. We are suggesting a pension system based on so-called points, which may contribute to the solution of the long-term financing problems. The essence of the system is that the points collected during the insured period, the average wage prevailing at the time of retirement and the estimated life expectancy constitute the basis for determining the pension amount. This system clearly shows how much one has paid for the elderly generation’s pension and what pension amount one can expect, taking account of bringing up children and the time and money the individual has spent on it. The system is only sustainable if every active person has a descendant, that is minimum one child who pays pension contribution by the time of his/her retirement. It is also necessary to include incentives in the system that ease the financial burdens of parents while bringing up children. The current system of family allowances covers only a smaller part of the costs related to bringing up children. However, the provision of pensions built up this way will only be modest. Therefore, the voluntary “second pillar” will continue to be absolutely indispensable.

KEYWORDS: pension system, social security, point system, willingness to have children, demography



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