2024-08-07 02:26:37
Only once before the end of the work experience, the lot from the private funds can be transferred to the National Institute of Social Sciences
New pension reform – with the introduction of multi-funds, more accurate life expectancy tables and a one-time transfer of contributions. The Bulgarian government received a letter with these recommendations from the Organization for Economic Cooperation and Development (OECD), where Bulgaria is applying for full membership. They were prepared after her mission to Sofia at the beginning of June, the purpose of which was to evaluate our pension model.
The strengths of the Bulgarian pension system are the three-pillar model,
which allows for the diversification of risk, as well as the good rules for the operation of private pension schemes and the payment of pensions from them. As well as the well-established system of control by the government, the OECD team found.
However, Bulgaria needs to complete its pension reform in several points, which mainly concern private funds. The recommendation is to allow so-called multi-funds for the second pillar.
Now, every Bulgarian who was born after January 1, 1960 must be insured in a private universal pension fund. The state has authorized the operation of nine pension insurance companies. In them every month
over 4 million working Bulgarians import
5% of your income for a second pension
(See their profitability in the infographic.)
For years, however, the companies have been insisting on loosening the rules on which they can invest the money of the insured, in order to provide them with a higher yield and, accordingly, greater savings for old age.
Currently, a huge part of the investments are in government securities and a much smaller part of the portfolios are in stocks. This significantly reduces the possible yield.
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 – or
the insured himself allows the fund to invest riskier
in pursuit of a higher yield for their future retirement. Or grouping the insured by age groups, with risky and profitable investments only being allowed for younger workers. And as people age, they should switch 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 multi-funds and there is even already preparation of certain legal texts in this direction.
The multifund system has been introduced in countries such as Chile, Mexico, Peru, Colombia, Lithuania, Latvia, Estonia, Slovakia, Hungary, Croatia.
The number of multifunds in individual countries varies from 2 to 5
Some have strictly defined age criteria for distribution of insured persons. The Baltic countries – Lithuania, Latvia and Estonia, have opted for the option for all those who have not independently chosen the risk profile of their portfolio to go to the conservative type of fund.
The mission recommends that the savings can be transferred to the NOI only once. This should be done at the time of retirement at the request of the insured.
Now the insured can regularly change their second pension items from the private funds to the National Pension Fund and vice versa. 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 state institute.
The constant movement of batch money between the 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, this transfer can last up to 5 years before retirement age. However, according to the OECD, this is not a sufficiently clear and good criterion.
In recent years, the trend of returning insured persons from the state pension pillar to private funds has been increasing. According to data from the National Revenue Agency, the insured persons are
transferred back to the universal funds a total of over BGN 15 million.
as of September 2023. Funds transferred to the Silver Fund and NISI between 2014-2023 are BGN 750 million. When calculating pensions for people with income from private funds, updated tables for expected life expectancy and expected age of death should be used, advises more the organization. At the moment, they are averaged and do not apply only to people who are about to retire.
“Changes in private pension insurance are being prepared, which have the main goal of increasing income for old age and guaranteeing adequate pension payments,” explained the Financial Supervision Commission. And confirms readiness and commitment for “participation in the development of the pension system in the country in order to guarantee trust, fairness, sustainability and transparency”.
“After the successful completion of the review, the Bulgarian side is not required to take short-term measures before joining the OECD. Institutions are expected to consider follow-up actions to further improve the pension system by improving compliance with OECD standards and best practices,” explained the finance ministry in a position that is also supported by the social. According to them, changes in the field of pension insurance must be coordinated with all institutions and interested parties – insured persons, pensioners, pension insurance companies, social partners, taking into account the specifics of the Bulgarian system.
The Bulgarian Association of Supplementary Pension Insurance Companies welcomes the recommendations received and is ready to continue discussions on changes.