Policy Risk in Action: Pension Reforms and Social Security Wealth in Hungary, Czech Republic
and Slovakia

Libor Dušek and Juraj Kopecsni

We provide evidence on the policy risk of social security in Hungary, Czech Republic and
Slovakia by computing the changes in the social security wealth induced by the pension
reforms undertaken since the 1990s. Methodologically we follow upon McHale’s (2001)
study of selected reforms in G7 countries. However, as we measure the differential
impact of the reform on workers of different genders, ages, and levels of education, we
are able to capture the aggregate, intergenerational, and intragenerational aspects of the
policy risk. Overall, the paper documents that also a pay-as-you-go system is not a secure
source of retirement income since pension reforms do change the future contributions and
benefits in different directions for different workers, and the magnitude of the reductions
in social security wealth sometimes exceeds several years’ worth of the workers’ earnings.

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