For every 100 people of working age in Hungary, there are now 55 dependants — and by 2070, that ratio could climb to 85. Generation Z will bear an ever-larger share of the cost of supporting older people, just as its own position in the labour market becomes less secure under pressure from AI. The pay-as-you-go pension system — in which today's workers pay for today's pensioners — is heading towards a point where the contributor base can no longer support it. This instalment examines the social contract behind the figures.
1. Pay-as-you-go: how the Hungarian pension system works
The Hungarian pension system runs on the pay-as-you-go principle. Contributions from today's earners — 18.5% of gross pay, the employee social-insurance contribution, with the employer paying a further 13% in social contribution tax — cover the entitlements of today's pensioners. There is no "reserve" that each generation built up in its younger years; every Hungarian forint (HUF) paid in is paid straight out to current pensioners. The system works well when a large number of earners support a small number of pensioners — that is, when the population pyramid has a broad base and a narrow top.
In Hungary, though, that pyramid has been turned on its head. The total dependency ratio — how many dependants (aged 0–14 and over 65) there are for every 100 people of working age (15–64) — was already ~55% in 2024. That is roughly one dependant for every two people of working age. And that is only the start: the European Commission's 2024 Ageing Report projects that, by 2070, the ratio could reach 85.3%. Every two people of working age will then be supporting more than one and a half dependants — and pensioners over 65 will dominate that group.
Pay-as-you-go pensions. Think of it as a family kitty: the working children pool their money to pay the retired parents' monthly income. The arrangement works as long as there are many working children and few retired parents. If the number of children falls and the parents live ever longer, the kitty empties. The Hungarian pension system is exactly like this: today's workers pay today's pensioners, and the contributions leave no reserve — the money is passed straight through. The problem: fewer and fewer children (future earners) are being born, and more and more parents (pensioners) are living longer. Hungary's system is a special case, because after the 1989–90 transition from communism, the country never fully switched to a funded model — mandatory contributions to private pension funds were introduced in 1998, but in 2010 the government legislated to fold them back into the state system. That decision meant the sums previously paid into private accounts were transferred back to the state, and the system continued to operate on a pay-as-you-go basis. The consequence: young Hungarians have no pension savings of their own, and their future pension depends entirely on what future earners pay in. The renationalisation of the private pension funds shifted roughly HUF 3,000 billion — some HUF 3 trillion, or about €7.5 billion at roughly 400 forints to the euro — a sum that in a funded system would have formed the younger generation's own pension pot. The other Hungarian peculiarity of the pay-as-you-go system is the long-standing practice of early retirement. Until the 2010s, Hungary had one of the lowest state pension ages in Europe, and under a rule that remains in force, women can retire after 40 years of qualifying service — often in their early fifties. That practice pushed up the number of pensioners while reducing the number of earners. The pension age is being raised, but the age structure has already shifted so far that the balance between contributions and pension payments cannot hold in the long run.
2. The demographic squeeze intensifies
An ageing population is not merely a statistical curiosity; it is a direct economic strain. The European Commission's 2024 Ageing Report sets out a detailed projection for Hungary's demography. The present population of 9.6 million is expected to fall to 7.3 million by 2070 — a loss of more than 2 million people. The core working-age group (15–64) shrinks from 5.8 million to 4.7 million, while the number of people over 65 rises from 2.0 million to 2.6 million.
This shift directly affects the sustainability of the pension system. If the number of earners falls while the number of pensioners rises, the same contribution burden has to be borne by fewer and fewer people — and each earner has to support more pensioners. By 2070, holding the contribution rate at today's 18.5% will be impossible given the demographic structure: either contributions have to rise substantially, or pension payments have to fall, or the state has to run an enormous budget deficit.
The IMF's 2025 Article IV Consultation report on Hungary analyses the path of public spending in detail. According to the report, "current transfers to households" — a category that includes pension payments — came to HUF 9,029 billion in 2023 (some HUF 9 trillion, or about €22.5 billion) and could rise to HUF 13,714 billion by 2030. That means growth of several hundred billion forints a year, in a budget where other spending lines — education and healthcare among them — are under pressure too.
Hungary's position is not unique; similar strains are visible across Europe. In Italy, the old-age dependency ratio already stands at 37% and will reach 62% by 2070. In Japan — where demographic ageing is most advanced — the over-65s already make up 29% of the population, and the labour market is struggling with severe shortages. The difference is that these countries have been searching for answers for far longer: Japan is betting on robotics and on keeping older people in work, Italy on family support and immigration. Hungary raised its pension age gradually from 62 to 65 between 2011 and 2022 — in line with the European average — but the dismantling of the private pension fund system, completed in 2011, effectively ended any prospect of young Hungarians building up funded pension savings of their own. At the same time, dismantling the private funds immediately reduced public debt and stabilised the budget, since maintaining the funded pillar was creating a large hole in the state's pension budget. Young Hungarians today have no realistic way of saving outside the state system.
The international comparison offers a second lesson: where pension systems have been made sustainable, the reforms have focused on three areas. First, raising the pension age and allowing greater flexibility over working lives — in Sweden and Denmark, the pension age tracks life expectancy automatically. Second, introducing a multi-pillar system, in which mandatory or voluntary private saving sits alongside the state pension, as it does in Poland and the Czech Republic. Third, raising the employment rate — particularly by encouraging women and older workers into work, where Switzerland and Iceland have gone furthest. Hungary performs poorly on all three: the pension age is not keeping pace with gains in life expectancy, the private savings pillar barely exists, and the employment rate — especially among older workers — is below the EU average.
The system works — a young population, many earners, few pensioners
The system grows fragile — the large cohort born during the Ratkó era (the state's coercive pro-natalist policies of the early 1950s) reaches pension age
The balance deteriorates — barely two earners for every old-age pensioner; maintaining the contribution rate is becoming increasingly difficult
The "Ratkó grandchildren" retire — the large cohort born in the 1970s, the grandchildren of that 1950s generation, reaches pension age between 2039 and 2042, bringing another sharp increase in the burden
The demographic nosedive — the working-age population (15–64) falls to 4.7 million while the over-65s rise to 2.6 million; the pay-as-you-go system becomes increasingly difficult to sustain
3. The generational bargain breaks down
The pay-as-you-go pension system rests on a social contract, an implicit bargain between the generations: today's workers pay today's pensioners, and expect that future generations will do the same for them. For Generation Z, however, that contract becomes one-sided: they pay the contributions, but by the time they reach pension age there will not be enough earners left to support them.
Generation Z therefore faces a double blow. On the one hand, with entry-level jobs being squeezed out by AI, they will find it harder to secure stable, well-paid work — and so pay less into the system. On the other hand, this is the very generation that will bear the heaviest burden of supporting dependants: by 2070, when Generation Z is aged between 58 and 73, the number of earners will be far below the number of pensioners.
This is not simply an economic problem. It is also a social injustice. Generation Z — already bearing the effects of the attention economy, educational decline and displacement from the labour market — must now shoulder the cost of financing the pension system as well, without any realistic prospect of a pension of its own while the present system remains unsustainable.
| Generation | What it pays in (contributions) | What it receives (pension) | Balance |
|---|---|---|---|
| Boomers (1946–1964) | Moderate contributions (many contemporaries paying in alongside) | High pension (few pensioners) | Strongly positive |
| X (1965–1980) | Moderate contributions | Moderate pension | Positive |
| Y/Millennials (1981–1996) | High contributions (mounting pressure) | Uncertain (reform of the system expected) | Neutral / risky |
| Z (1997–2012) | High contributions plus uncertain income | Unlikely under the present system | Clearly negative |
4. Women face a double burden
The demographic strain bears particularly hard on young women. Female participation in the Hungarian labour market has traditionally been lower than men's, partly because of childbearing and family duties. In a pay-as-you-go system, though, every earner who drops out — woman or man — adds to the load on those who remain.
The collapse in births — Hungary's fertility rate stood at 1.50 in 2023, far short of the 2.1 needed to hold the population steady — means there will be fewer earners again in the future. Government family-support schemes, from the subsidised home-purchase grant for families with children to the subsidised "baby-expecting" loan, have so far failed to turn the trend around. Women in Generation Z therefore face both a more difficult labour market and greater pressure to start a family — in an economy where the cost of housing, education and healthcare makes having children unaffordable for a growing share of young people. Social disadvantage in Hungary reaches beyond those living in poverty to those who slip through the statistical net altogether. A significant part of Generation Z falls into precisely that invisible group: neither unemployed nor in work, but living in a grey zone that falls outside official statistics.
5. Consequences: what to watch for
The pension system will not fail all at once; it will erode gradually, and the signs are already visible. These are the indicators worth watching:
Further increases in the pension age. The current pension age of 65 is likely to rise further — possibly to 67 or 68 — in order to cut the number of pensioners and raise the number of earners. For Generation Z, that means a working life of 40 years or more, in a labour market that is already shifting beneath them.
A stronger private pension pillar. The unsustainability of pay-as-you-go is likely to accelerate the spread of private pension saving. Those who can afford it will increasingly rely on their own savings in retirement — but that option is open to higher earners, and a large share of young people simply cannot put anything aside.
Immigration becoming a political question. One possible — and contested — answer to the demographic strain is to encourage more labour migration. If not enough Hungarian children are born, labour shortages could be offset by immigration. In Hungary, however, that question has become a highly polarised political issue, and short-term political advantage routinely takes precedence over longer-term demographic priorities.
In summary: Generation Z inherits a pension system whose sustainability is already in doubt — and one that demographic trends will only weaken further. For Generation Z, the implicit generational contract of the pay-as-you-go system becomes one-sided: they pay in, with no certainty of getting anything back. The next instalment examines how the problem might be addressed, from universal basic income to alternative models.
"A pay-as-you-go pension system works rather like a pyramid scheme: those who join first do well, and those who join last pay. Generation Z is among the last."
— An economic observer on the breakdown of the generational bargain
"By 2070, every two people of working age will be supporting more than one and a half dependants. In that structure, the present pension system is not sustainable."
— European Commission Ageing Report (2024)
- World Bank — Age Dependency Ratio: Hungary
- European Commission — 2024 Ageing Report: Hungary Country Fiche
- IMF — Hungary 2025 Article IV Consultation
- Hungary's Central Statistical Office (KSH) — population and employment statistics
- National Tax and Customs Administration (NAV) — guidance on social-insurance contributions and the social contribution tax