Pension contributions and replacement rates in CEE

On the radar

• In Slovenia, producer prices grew by 3.9% y/y.
• In Croatia, real wage grew by 2.4% y/y in August and unemployment rate landed at3.4% in September.
• Today, Poland will release retail sales growth in September.
• Further, Hungary will publish unemployment rate.

Economic developments

Based on OECD data and report on pensions, we look at the broadly positive but far from uniform relationship between mandatory pension contribution rates and projected gross replacement rates. Czechia stands out with exceptionally high contributions (31.3%) but a comparatively moderate replacement rate (44.2%), while Austria achieves a substantially higher projected replacement rate (74.1%) with lower contributions (22.8%). It should also be noted that, in Czechia, the contribution rate also finances disability benefits. Furthermore, Poland combines relatively modest contributions (19.5%) with one of the lowest projected replacement rates (28.6%). Slovakia occupies a more generous position, with contributions of 22.8% and a projected replacement rate of 58%. This comparison, however, should not be interpreted as a direct measure of pension system efficiency as PAYG systems have been already running large deficits which are going to widen with the ageing population. The data on household financial assets that we presented yesterday also suggest a relatively low share of holdings in insurance, pensions and standardized guarantees. The average share stands at 14% in CEE, ranging from 6% in Hungary to 23% in Croatia.

Market movements

CEE currencies continue to move within a tight range, with EURCZK at 24.23, EURHUF at 364 and EURPLN slightly lower at 4.35. Long-term yields have increased further across the region, and the high-yield environment persists. The US Treasury sold 20-year bonds at a yield of 5.469%, the highest for this maturity since 1986. In Hungary, the beginning of the week was dominated by government communication surrounding the country's 2027 budget proposal and its medium-term fiscal strategy. The key message is that the budget deficit target for 2027 has been set at 4.9% of GDP (down from 7.5% of GDP in 2026). According to the medium-term fiscal path, the deficit would gradually decline to 2.8% of GDP by 2030. The government is planning a front-loaded consolidation strategy based primarily on expenditure restraint, implying that the most significant deficit-reduction measures would be implemented early in the adjustment period. On the revenue side, the planned tax changes aim to reduce the tax burden on households' earned income while increasing contributions from higher wealth brackets and corporate profits. Corporate income taxation will move to a two-tier structure, and several taxes affecting the business sector are expected to increase. Finance Minister Karman said that a spending-led adjustment could open the door to euro adoption as early as 2032, but Hungary should not rush into ERM II. In Czechia, parliament has begun proceedings on the government's 2027 state budget proposal.

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