Hungary is trying to force 3 million people now in private pension schemes back into the state system to help it meet strict budget targets.
Special incentives would be offered to those switching into the state pension plan by Jan. 31, Economy Minister Gyorgy Matolcsy said Wednesday. Those people remaining in private schemes will become ineligible for public pensions -- a move that would effectively cost them 70 percent of their retirement payouts.
At stake is about 2.7 trillion forints (euro9.8 billion, $13.5 billion) accumulated in individual pension accounts and managed by private pension funds.
The government plan, while not nationalizing private pension funds outright as Argentina did in 2008, is expected to make it very difficult for the 18 funds offering pension services in Hungary to keep operating.
Matolcsy said severe cuts will also be made in how much private funds can charge for fees and operating expenses.
Hungarians will automatically be transferred into the state system unless they opt out.
At present, 10 percent of most employees' wages go into a private pension fund, while employers pay another 24 percent into state coffers. Under the government's new plan, those who stay in the private scheme can count only on their own 10 percent payments when they retire.
Matolcsy told reporters the new plan was an "important turning point in terms of economic policy."
Hungary was hard hit by the global financial crisis and is still facing daunting economic challenges. In 2008, it was forced to rely on a bailout of euro20 billion ($27 billion) from the International Monetary Fund and other institutions to avoid bankruptcy.
Government officials this summer have made contradictory statements about the state of the country's finances, increasing uncertainty in the financial markets about Hungary's credibility and hurting the stability of the forint.