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IPE special report May 2018

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Pension funds negotiate investment rules

BULGARIA - The association of Bulgarian pension management companies (BASPC) has called on the government to lift the cap on mandatory pension schemes' investment in equities and argued schemes should be allowed to participate in IPOs.

BASPC is also pressing for the right to structure diversified portfolios, as part discussions by a working group consisting of the BASPC, the Financial Supervision Commission and the social policy ministry, currently reviewing the social security code.

A proposal is expected in early 2008 but commission deputy chairman Biser Petkov told local business newspaper Dnevnik earlier this month it supported the addition of multi-funds to give members a choice between plans with differing degrees of risk and yield.

The BASPC had been campaigning for the changes for some time and has recommended the creation of high-risk funds holding up to half of their assets in equities - balanced funds being allowed to hold with between 10% and 60% of their assets in equities, while conservative funds have no more than 15% in equities.

Petkov indicated the commission was considering introducing these reforms for third pillar voluntary funds and only later apply them to mandatory funds.

By putting their money in a voluntary supplementary account, clients assume the investment risk themselves and therefore it is only logical to give them the option to choose a correlation between exposure and yield, Petkov told Dnevnik.

Bulgaria also has two types of second pillar mandatory schemes - the first of which is a universal pension fund for everybody born after 31 December 1959, regardless of their job and gender, while the second is a professional fund for people working under difficult conditions such as miners and pilots, who therefore can retire earlier than the average person, which pays out until the universal pension kicks in.

The supervisor has indicated it is considering allowing universal and occupational pension funds to buy IPO shares worth up to 5% of a fund's assets.

They cannot invest more than 20% of their portfolio in equities at present and are barred from IPOs, so the BASPC has proposed lifting the equities to 30%, including IPO shares.

The regulator and the industry are also negotiating on account management fees. The commission has proposed amending the social security code to cut the maximum account management fee from 1% to 0.6% over two years.

According to the commission, mandatory fund charges are among the highest in central and eastern Europe while the voluntary schemes are subject to pricing competition.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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