Voluntary Pension Funds (VPFs) are the most popular corporate pension vehicles in Hungary. They complement the mandatory pay-as-you-go (PAYG) public scheme, providing comprehensive framework for life after retirement.
How VPFs work?
Voluntary Pension Funds (VPFs) are the most popular corporate pension vehicles in Hungary. They complement the mandatory pay-as-you-go (PAYG) public scheme, providing comprehensive framework for life after retirement.
In the corporate pension programs contributions usually amount to net 2-5% of the gross wage.
VPF is a personalized, defined contribution plan.
Pension funds are legally owned by their members. However, the administration and asset management is usually carried out by subsidiaries of a large financial company.
The contributions arrive from three sources:
- employersâ contributions;
- individualsâ own contributions (regular of one-off;
- tax refunds.
The pension fund acts as a common asset pool, offering several investment portfolios.
It is intended to generate stable source of income over the long term, although yields may highly volatile over the years. Its aim is to provide pensions to individuals when they reach the end of their working years and commence retirement. Clients may access their VPF savings after ten years, when special tax rules apply.
Advantages for the employee
Inheritable personal accounts are created with investments and yields, providing financial safety for retirement.
Tax refund for both corporate and individual contributions.
Contributions can be accessed after a ten-year waiting period applying special tax rules
The retirement services are free of tax after ten years.
What do I need to know as an employer?
- The same contribution (percentage or fixed amount) is to be provided to all employees of the same employer (special rules may be applied to those who retire within 15 years)..
- Some simple administration is necessary with monthly contribution payments and matching reports, with which we can help.
- You have the opportunity to administer your own, employerâs account online at most of the funds.
- VPF is a flexible construction: the employer may terminate or suspend the payment of the contributions without being charged penalties
- Employers may change without restrictions the contributionsâ amount.
- The VPF contributions are taxed as wages and salaries with an additional tax refund.
- It is possible to differentiate with a loyalty programme: different groups can be formed by internal rules with different amounts (donation)
- Hungarian and foreign citizens are entitled too.
- The new joiners are eligible after six months at the latest, as described by the law (shorter period is allowed).
- The minimum monthly contribution is HUF 5000-15000 per month depending on the fundsâ statues.
- The operations of VPFs is governed by the law: 1993 XCVI.
VPFs at a glance*
*As of 30 June 2021
members
VPFs in Hungary
bn HUF asset managed
Incorporate voluntary pension contributions into the compensation system
The global pension policy of your company can be implemented in Hungary through VPFs
Increases employeesâ commitment
Enhances employersâ image
Multinational companies dominate the sector
The voluntary pension fund is the most popular form of pension savings in Hungary.
Investment portfolios
There is no option to set up an individual or a corporate portfolio, members should choose from the standardised portfolios of the chosen pension fund. Members can switch between portfolios, the time and cost depends on the fund.
Funds usually offer 3-6 investment portfolios. Members can choose according to their risk taking ability.
The general rule also applies to these investments: shares, the riskier investments generate higher returns over the longer term, but yields will volatile widely from year to year, even going negative. Bonds are more stable, producing lower yields.
It should be noted that the legislation contains various restrictions and requirements to ensure that pension funds do not take too high investment risk, while at the same time the portfolios offered may represent quite different levels of risk.
As people can be members of several voluntary pension funds at the same time, they can diversify portfolios this way.
When the past performance of a portfolio is examined, it is recommended that an appropriate timeframe of at least 10-15 years should be taken into account.
Taxation
Employers contributions paid on behalf of the employees are taxed as wages and salaries, with an additional tax allowance.
The pension you receive from the voluntary pension fund after retirement is not taxable according to the current legislation.
How shall I start the corporate VPF program?
Contact us for free consultation. We have 25 years of experience in the pension fund industry in Hungary, we can help you to design and implement your pension program. You can rely on us from the very first steps, we can help with the paperwork, informing people within the organisation and administration of the program.
