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Development and Results of Fully Funded Pension Provision in Bulgaria

This text discusses the development of fully funded pension provision in Bulgaria, including the establishment of pension insurance companies and the integration of supervision authority. It also highlights the main characteristics of the Bulgarian pension system and the challenges it faces.

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Development and Results of Fully Funded Pension Provision in Bulgaria

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  1. Development and Results of Fully Funded Pension Provision in Bulgaria BISSER PETKOV Deputy Chairman of Financial Supervision Commission Head of Social Insurance Supervision Division Conference “Private Pensions – Consolidation of a New Market”, 18th October2006, Bucharest, Romania

  2. Development of Funded Pension Provision in Bulgaria 1994 – Voluntary pension funds launched - fully funded basis,individual accounts, non-regulated 1999 – Legal regulation of pension provision activity (Adoption of the Law for SupplementaryVoluntary Pension Provision and the Mandatory Social Insurance Code). 2000 – Establishment of the State Agency for Social Insurance Supervision and licensing of the first pension insurance companies. – Professional Pension Funds launched. 2002 – Universal Pension Funds launched. 2003 – Integration of supervision authority over the non bank financial sector • Establishment of Financial Supervision Commission (FSC) • Social Insurance Code adopted

  3. Architecture of the Bulgarian Pension System • I. Mandatory Pay-as-you- go-system. • National Social Security Institute • National Revenues Agency • II. Mandatory supplementary retirement provision. • Universal PF • Professional PF • III. Voluntarysupplementary retirement provision. • Voluntary PF • IORP, 2007 • * Universal Pension Funds - mandatory participation for all born after 31.12.1959 • Professional Pension Funds - for workers in hazardous work conditions (1st and 2nd category of labour) • Centralized collection of social insurance contributions by NRA. • Public control over the activity of PICs (Trustee and Advisory Boards)

  4. Main characteristics of Bulgarian Pension Reform Based on the World Bank conception for multipillar social protection system, considering the national tradition and specificity: Industry-driven reform; Leading role of the solidarity PAYG system changing it parameters; Gradual increase of the coverage of the fully-funded part by transferring increasing portion of mandatory contributions towards it; the possibility for each PIC to manage three pension funds; Gradually shifting the early retirement pensions (bridging pensions) in special segment of the II-nd pillar.

  5. Structural (dis)similiarities between the Bulgarian and EU Pension System Models

  6. Bulgarian Pension System Current Characteristics

  7. Qualifying condition for pension access (general rules)

  8. Adequacy of the reformed pension system • Replacement rate from the three pillars (final goal of the reform) – 70 – 75%, as follows: • I-st solidarity pillar – 40%; • II-d funded pillar – 15%; • III-rd funded pillar - 10 – 20% • Current disappointment of the pension levels. Very thrifty pension indexation formula; • Individual accounts, good motivation and personal choice in II and III pillar.

  9. Main Characteristics of Funded Pension Provision Market

  10. List of licensed PIC PIC "DOVERIE“ PLC PIC "SAGLASIE“ PLC PIC "DSK-RODINA“ PLC PIC "ALLIANZ-BULGARIA“ PLC "ING PIC“ PLC PIC "CKB-SILA“ PLC PIC "LUKOIL-GARANT“ PLC PIC "DZI-PI“ PLC PIC“TOPLINA“ PLC

  11. Institutional organization of the pension supervision: transition from the specialized model to the partially integrated supervision model Greater institutional independence of the supervisory body Expansion of the regulatory powers Sharing of good supervisory practices in the field of the non-banking financial sector Organizational integration with preservation of the sectoral/subjective approach

  12. Dynamics of PF Asset Growth PF Net Assets (in th BGN) 31.12.2002 - 31.12.2010 (estimated forecast) 1 EUR = 1.95583 BGN exchange rate pegged to EUR under currency board GDP 6.4 2.7 Source: FSC, 2006

  13. Rate of Return on Pension Funds Investments Source: FSC and NSI

  14. Fees Structure *1 EUR = 1.95583 BGN exchange rate pegged to EUR under currency board

  15. PF’s Investment Regulation (Quantative limits as % of net assets)

  16. Changes in the structure of investment portfolio of funds for mandatory supplementary pension provision (%)

  17. Changes in the structure of investment portfolio of funds for voluntary supplementary pension provision (%)

  18. Pension Reform Sustainability to Challenges of the Future Risks for the capital funded pillars: • Financial destabilisation, bankruptcies and ruined confidence in reforms • Badpension funds assetsmanagement, low rate of return • Political risk – reformed stopped, regressive actions towards the system • Institutional Risks

  19. Bulgarian Pension Reform:key lessons Strong political will and responsibility with large public support; Favorable macroeconomic environment; Favorable public attitude; Institutional capacity and well developed information and communication system; Bridge between reformers and researchers; Technical and financial support by international community; Active and continuous PR

  20. Thank you for your attention! Petkov_b@fsc.bg http://www.fsc.bg

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