Bulgaria’s government is set to reverse some of the controversial changes to the second-pillar pension system rushed into law at the end of 2014 after the Finance Ministry published a series of amendments on 23 January.
Pension fund members will still be able to switch to the first pillar, but crucially this decision will no longer be irreversible.
Instead, workers with more than five years left to retirement will have the option, once a year, to change their preference.
The funds transferred from the second pillar will no longer go to the PAYG system of the first pillar National Social Security Institute but to the Silver Fund, the stability vehicle set up in 2008 to cover future pension deficits.
New entrants to the labour market will have, as was the case before the law was revised, three months to choose a second-pillar fund or be assigned to one.
The 2015 law gave them a year from their first period of paid employment to make a decision or automatically default to the first pillar.
According to the Finance Ministry’s website, “the amendments proposed will be used as the basis for conducting a useful discussion and a wide public debate aimed at reaching maximum consensus and long-term solution of the pension system issues … by March 31”.
Ivaylo Kalfin, deputy prime minister and minister of Labour and Social Policy, will lead a task force to establish this consensus.
The government’s about-turn follows wide-ranging objections, including from the Reformist Bloc, a junior member of the ruling coalition.
The ombudsman of the Republic of Bulgaria, Konstantin Penchev, who had received numerous complaints from workers concerned about the “nationalisation” of their funds, warned that the pension changes should have followed extensive consultation, and that he would consider exercising his right to refer the matter to the Constitutional Court.
Intensive lobbying from the Bulgarian Association of Supplementary Pension Security Companies (BASPSC) also appears to have paid off to some extent.
The association sent an open letter to the Parliament, government, president and media refuting the 10 “untruths” being propagated about the second pillar.
These included the assertion that, since their inception in 2002, the second-pillar funds have generated a negative real return.
BASPSC states that, according to Financial Supervision Commission (FSC) data, between the start of April 2002 and the end of September 2014, the universal pension funds generated a real annual return of 0.464%.
Miroslav Marinov, executive director at Pension Insurance Company Doverie, said: “We are the only financial institution to announce a real rate of return, while all the others report only nominal ones.”
Marinov expressed disappointment that the new amendments did not cover many outstanding important issues in the second-pillar pensions regime, including returns, guarantees, fees, payouts, investment regulations and the introduction of multifunds.
The BASPSC is likely to be pushing for these in the coming weeks.
It still faces powerful opponents.
Earlier in January, the Parliament’s budget and finance committee drafted its own amendments, including introducing guaranteed returns and slashing fees.
The committee is exceptionally hostile to the second-pillar system, with chairwoman Menda Stoyanova recently accusing it of harbouring “bad apples,” a charge refuted by the FSC.
For more on recent changes to Bulgaria’s pension system, see Barbara Ottawa’s article on Pensions in Central & Eastern Europe in the January issue of IPE magazine
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