2024-08-05 20:40:42
The Bulgarian government has received recommendations for a new pension reform to finalize the type of pension system from the Organization for Economic Cooperation and Development (OECD), where Bulgaria is applying for full membership.
The recommendations have already been sent to the Bulgarian government and should be announced in the coming days, “24 Chasa” learned from a source in the Ministry of Finance. The letter from the OECD is addressed to the Ministers of Finance Lyudmila Petkova and Ministers of Social Affairs Ivaylo Ivanov, as well as to the Commission for Financial Supervision.
The recommendations were prepared after an OECD mission in Sofia at the beginning of June. The aim was to evaluate the pension model of Bulgaria.
The strengths of the Bulgarian pension system are the three-pillar model, which allows for risk diversification, as well as the good rules for the operation of private pension schemes and the payment of pensions from them, and the well-built system of control by the government, established by the OECD mission.
However, Bulgaria needs to complete its pension reform in several points, which mainly concern private pension funds.
The OECD’s recommendation is to allow so-called multi-funds for the second pillar – the mandatory voluntary pension insurance in universal pension funds.
Currently, every Bulgarian who was born after January 1, 1960 must be insured in a private universal pension fund. As in Bulgaria, the work of nine pension insurance companies is allowed. Each month, over 3 million working Bulgarians contribute 5% of their income to a second pension.
For years, however, companies have been pushing for a loosening of the rules on how they can invest policyholders’ money to provide them with higher returns and, accordingly, greater retirement savings. At the moment, a huge part of the investments are in government securities and a much smaller part of the portfolios is in stocks, which reduces the possible return significantly.
The OECD’s proposal is to create the so-called multi funds. With them, riskier, but also more profitable investment of the funds will be possible. There are two options here – the insured himself allows the fund to make riskier investments in pursuit of a higher yield for his future pension. The second option is grouping the insured by age groups. And that risky and profitable investments are allowed only for younger workers. And as people age, they move to more conservative schemes, where the yield will be lower, but the risk of losing the funds is minimal or equal to zero.
According to “24 Chasa” sources, Bulgaria will settle on the second option of the multifunds, and there is even already preparation of certain legal texts in this direction.
In addition, the OECD recommends that the possibility of transferring the savings to the state pension fund should be limited to one time only, and that this should be done at the time of retirement at the request of the insured person. At the moment, it is possible for the insured to regularly change their accounts for a second pension from the private funds to the NSI and vice versa. As for a large part of the first pensioners from the private funds, it was more profitable to do so, so as not to receive a reduced pension from the National Social Insurance Institution. The constant movement of batch money between private funds and the government Silver Fund, where the sums are held until it is time for a person to retire, seriously distorts the market. Currently, the limitation is that this transfer can continue until reaching an age of five years before retirement. However, according to the OECD, this is not a sufficiently clear and good criterion.
The organization also advises that updated life expectancy and age of death tables be used when calculating pensions for people with income from private funds. Currently, the tables in use do not only refer to people who are about to retire, but are averaged, the OECD’s review found.
Expect a continuation of the topic in the newspaper “24 chasa”