BULGARIA – Figures within Bulgaria’s pensions industry have voiced concerns over a possible “Hungary scenario” despite strong growth in the country’s second-pillar system and a relatively low government/debt ratio.
Last year, the Hungarian government effectively nationalised the country’s supplementary second-pillar pension system.
In Bulgaria, a number of groups have been increasingly critical of the country’s second-pillar system in the media, arguing that Hungary, Chile and Argentina are proof that funded pension systems do not work.
Yet Bulgaria – in marked contrast to Hungary’s situation prior to its move to acquire its second-pillar assets – actually boasts a relatively low debt-to-GDP ratio of less than 20%, as well as a stable credit rating.
Since Hungary made its controversial decision, it has drawn fire from the European Union and the IMF and seen its credit rating tumble even further.
Despite this, the Bulgarian pensions industry fears the government is thinking to take similar steps.
The government has already tried and failed to introduce a ‘one account per citizen’ programme for all contributions, including healthcare, taxes and first and second-pillar pensions.
An industry expert – who wished to remain anonymous due to ongoing negotiations and the growing “tension” between the government and the industry – said officials could have used this unified tax account to divert second-pillar contributions to the first pillar or the tax system, as they would no longer have been “labelled”.
The source said this programme was now off the table after “tough negotiations”, but that the industry anticipated fresh attempts to extract money from the second pillar, as “it is always easier to take money from pension funds than impose new taxes before an election”.
One likely method, the source continued, would be to allow Bulgarians to opt-out of the second pillar altogether, as officials have been increasingly critical of “badly managed” pension funds.
Government statistics, however, show an annualised 6% average long-term return for the largest pension fund Doverie since 2000.
And statistics published by the pensions regulator for the whole of the industry show an average 18.7% asset increase, both from contributions and returns on investment, for 2012, bringing total assets to more than BGN5.4bn (€2.8bn).