Demographic challenges and pension systems in Hungary and Austria

Abstract

This study examines the sustainability of the Hungarian and Austrian pension systems in light of demographic challenges. It’s main hypothesis is that demographic trends threaten the stability of the system in both countries. The analysis compares the retirement age, the pay-as-you-go (PAYG) structure, and indexation, based on data from sources including the Hungarian Central Statistical Office (KSH), Eurostat, and Statistik Austria. It was found that the fertility rate persistently falls short of the replacement level, while the dependency ratio and life expectancy are increasing. The retirement age in Hungary is an uniform 65 years, while in Austria, the retirement age for women is gradually increasing to 65 by 2033. The PAYG system relies on the first pillar in both countries. Regarding indexation, Hungary applies a more predictable price indexation, while Austria uses a more complex regulation aimed at reducing inequalities. Long term sustainability lies in raising the fertility rate; however, temporary reforms are needed until the measures supporting childbearing take effect. These include a flexible retirement age, a retirement age linked to life expectancy, further support for self-provisioning, and the introduction of a 14th-month pension.