Bulgaria takes steps to pull funds from professional pension schemes
BULGARIA - The Bulgarian council of ministers has decided to stop contributions to professional pension funds from next year and eventually withdraw all accrued assets from the funds.
The bill will now go before parliament.
The government, citing the need to address the state deficit, said it wanted to put the BGN465m (€237m) currently accrued in the nine mandatory professional pension funds, covering workers in hard labour jobs like miners or pilots, into a separate fund without managed individual accounts.
But Miroslav Marinov, deputy chief executive and CFO at PAC Doverie, one of the largest pension fund management companies in Bulgaria, said the move was "nonsense".
"I do not understand why the government is not turning to the financial market to sell government debt instead, only having a debt-to-GDP ratio of 14% at the moment," he said.
A VAT hike was also rejected as possible other solution to decreasing the deficit, which, at around 4% of GDP, is far lower than in many western European states.
Marinov voiced concerns that, if parliament approves the change to the pension system, the mandatory general pension funds - with BGN2.5bn in assets for all Bulgarians born after 1959 - will be next.
"And if pension funds are ordered to sell their holdings before transferring money to the new fund," he added, "this will be a catastrophe for the Bulgarian financial market, as pension funds are among the largest investors, and the market is not very liquid."
He said the parliament's next move remained unclear, as some members of even the parties in the coalition government opposed the plan.
The government has received an open letter from the association of asset managers to abandon the plan.
Among the pension fund management companies, the largest players are international groups like Doverie (part of the Vienna Insurance Group), Allianz, ING and Hungarian OTP - all of which also run other businesses in Bulgaria and might be alienated by the step.
The one group supporting the step seems to be the trade unions, but their reasoning remains vague.
Marinov said: "Nationalising pension money and going back to a PAYG system will increase the pension gap in the future, as young Bulgarians are still going to work outside the country and, therefore, fewer new contributors are entering the PAYG system."
The debate in Bulgaria comes after similar steps were announced in Hungary.