The Bulgarian press was full of speculation last November about the nationalisation of second-pillar assets. When the Hungarian government froze all contributions to the second pillar in 2010 and appropriated most of the assets, pension industries in the region, including Bulgaria, have lived in fear of similar attempts.

Indeed, contributions to the second pillar were cut in Poland and a large-scale asset transfer to the first pillar instigated. Lithuania also shrunk the size of its pension funds in the wake of the financial crisis, albeit only temporarily.

In Bulgaria, rumours about similar plans have surfaced. Despite this, one pension source, who spoke on condition of anonymity, said there were no such government plans.

In the 2015 budget, the finance minister Vladislav Goranov promised to increase all state pensions by 1.9%, a move financed by cutting governmental staffing costs.

This should also cut the deficit to “reasonable limits” to ensure “the required resources for restarting suspended EU funds” and “improve possibilities for investment”, the finance ministry noted in a press release on the draft budget.

Other CEE countries have used second-pillar assets to cut government debt, so this announcement might have triggered fears. Further, the pension debate in the country has been heated by the government’s proposition to increase the retirement age. Union representatives protested, calling on the authorities to “start working with the social partners on legal changes aimed at stabilising the system”.

Meanwhile, Bulgarian pension funds are doing well, having reported a 4.6% return for 2013 with the long-term average closer to 6%. The current deflationary environment means the real yields are even higher. The 10 funds, with a total of BGN5bn (€2.6bn) in assets, are part of the mandatory second pillar. Only those working in particularly hard or hazardous work environments are covered by special professional pension funds.

Official asset allocation statistics compiled by the Bulgarian regulator, the FSC, show an increase in equity allocations as well as a greater diversification across asset classes, and outside Bulgaria.

Government bonds make up around 40% of the portfolios, corporate bonds another 16%, equities and mutual funds account for 30% with the remainder in bank deposits and cash.

Overall, half of these investments are made abroad but while one pension fund has 2% foreign exposure, Doverie, the largest fund by assets with BGN1.4bn, invests over 70% abroad.

Domestic bias is expected to decrease slowly, while low interest rates mean bank deposits look unattractive.

The Doverie fund is part of the Vienna Insurance Group (VIG), headquartered in Austria which has frequently reiterated its plans to 
sell the company. Last year, it looked like a buyer had been found in the Russian-backed investment vehicle United Capital but the deal was cancelled following government interventions and a lack of transparency about business plans.

Following this setback, VIG’s CEO Peter Hagen said: “A withdrawal from the purchase was not covered by the contract but we will not be forcing anyone to buy Doverie.” He added that VIG would continue to hold the company in its portfolio although pension funds are not part of the company’s core business.