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Bulgarian schemes ‘to grow as rules loosen’

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BULGARIA – Bulgarian pension funds’ asset growth to €564m is set to continue as investment regulations become less restrictive, says ING.

“The total amount of net assets accumulated in all types of pension funds was €564m (2.4% of GDP) as of year-end 2005,” ING Wholesale Banking reported in a client newsletter for central and eastern Europe.

“In one year they increased 41% (€166m) as a result of several factors: nominal increase in the average wage, employment growth, good annual return on assets which varied between 7.5% and 9% depending on the type of the fund.”

But there was a “higher-than-required” concentration - 51.7% - of assets in government securities.

Mortgage bonds accounted for 9.2%, while real estate and foreign securities accounted for 0.7% and 1.3% respectively. Bank deposits comprised 19%, corporate bonds 9.7% and stocks 7.4%.

ING said: “It is expected that this pattern will change gradually after March 2006 when a new regulation took effect abolishing the threshold for government securities, thus allowing better diversification as well as decreasing the pressure on prices of government securities.

“As a result of the recently adopted legal changes, oversubscription at the government security auctions has significantly decreased.”

There was another amendment with the broadening of the geographical scope of investments by adding European Union and European Economic Area countries as well as third-party states.

Assets covered included government securities, shares and corporate bonds, investment/mutual funds, bank deposits, municipal bonds and real estate.

“In line with Bulgaria’s approaching EU accession and after three years of rigid limits, pension fund investment rules have now been loosened.

“Assets are expected to grow considerably due to new contributors and a small number of retirees as well as an increase in the contribution rate coupled with wage and employment increases.”

The role of pension funds on the capital markets would increase “because of the growing assets under management and broader investment alternatives”.

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