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Bulgaria may offer multifunds in 2010

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BULGARIA - Multi-funds, or investment portfolios with different risk profiles, could be introduced in the third pillar pensions regime next year if the government adopts a draft law by the end of 2009, the Bulgarian Association of Supplementary Pension Security Companies (BASPSC) has revealed.

Nikola Abadjiev, chairman of the BASPSC, delivered a presentation at the conference Multifunds - Implementation and prospects in the pension systems of the Central and Eastern European (CEE) Countries suggesting Bulgaria is close to implementing a change that has now been on the agenda for five years.

The country started studying the international experience of implementing multifunds within pensions in 2004, and this was followed by various papers on the concept and specific legal requirements of the funds, beforegovernment officials moved onto first drafts of a law to be added to the Social Insurance Code.

Abadjiev said the Council of Ministers finally adopted the draft law in April, and stressed it was based on international experience but takes into consideration the existing pension system, beforethe legislation was submitted it to the Bulgarian Parliament for discussion and adoption.

In his presentation he said there is a “readiness to adopt the law by the end of 2009”, and added a “possible start for the introduction of multifunds in Bulgaria is 2010”.

It is envisaged that the funds will be introduced gradually, starting with the voluntary third pillar of the pension system, and to begin with there will be three types of investment portfolio:

Aggressive portfolio - between 50-80% of assets would be invested in variable return investments and the rest in fixed rate assets; Balanced portfolio - between 15-50% would be invested in variable return assets, and Conservative portfolio - a maximum of just 15% would be invested in variable income instruments, such as equities.

The current draft design and legislative framework ensures the investment policy of each portfolio is reviewed every three years, and “immediately after any substantial change in the market conditions and/or the investment objectives of the members of the respective portfolio”.

Abadjiev said once the multifunds have been proved to be efficient and beneficial to scheme members, the second stage would see the portfolios extended into the second pillar and the supplementary mandatory pension funds.  (See earlier IPE article: Crisis might speed up Bulgarian reform - CFO interview)

He said the reasons for pursuing multifunds include providing alternative risk and return profiles to members in relation to their age; allowing members to become more involved in fund management as they can switch portfolios; increasing competition, and acting as an “influence on the stabilisation and development of the Bulgarian capital market”.

That said, while the funds could be introduced as early as next year, Abadjiev argued they should be accompanied by a national educational programme on social security and financial awareness and implemented in “close cooperation” between pension firms, BASPSC, and the Financial Supervision Commission (FSC), to ensure “effective management and control of the investment portfolios”.

Elsewhere, the International Monetary Fund (IMF) warned in a statement, relating to its latest mission to the country, that if Bulgaria plans to “cut the social security contribution rate in 2010 and over the medium-term [it] should be considered only within the framework of a comprehensive pension reform, aiming at ensuring the sustainability of the pension system”.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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