BULGARIA - Pension insurance companies in Bulgaria are investing more in equities and corporate bonds than in government securities for the first time since the creation of the second pillar pension system in 2000.

At year-end 2006, local pension insurers held BGN480m (€244m) in bonds and equities and BGN420m in government securities.

The asset shift became possible when the government lifted minimum requirements for investments in government securities three months ago. At that point BGN500m of local pension insurers' investments was in government securities and BGN415m in equities.

The last quarter of 2006 also saw a major move towards investments abroad spearheaded by Doverie, Allianz, ING and Lukoil-Garant. Foreign assets in portfolios rose by BGN82m to BGN123.6m.

Analysts expect the relaxed investment rules to contributed to better returns for pension funds in 2007. Last year the average pension fund only just returned above inflation.

Second and third pillar pension funds combined posted an average return of 7.8% with inflation standing at 7.4%.

However, returns varied greatly from fund to fund. The best occupational funds returned as much as 17.01%, the worst 3.23%. A similar variance in rate of returns could be found among universal and third pillar funds.