PensionsEurope has expressed alarm about the recent amendments to Bulgaria’s Social Insurance Code enabling members of the second-pillar pension system (the Universal and Occupational pension funds) to switch fully to the public pay-as-you-go (PAYG) system.
In a recently issued press release, the Brussels-based lobbying body warned that the changes jeopardise the country’s multi-pillar pension system.
PensionsEurope is disturbed by the legal change stipulating that, in the case of members who choose to transfer to the second pillar, the decision is irreversible.
In a statement, it says: “This reform in Bulgaria is remarkable, as employees are made to choose between two systems of retirement provision that are non-comparable by nature – a PAYG and a fully funded system.”
The organisation also noted that, because Bulgaria’s first pillar does not run individual accounts, the funds would be swallowed up in the PAYG system.
According to Matti Leppälä, PensionsEurope secretary general, the current Social Security Code on the table undermines the role of funded pension schemes in the pension system and the economy.
“Universal Pension Fund (UPF) members will have to choose whether to continue their parallel participation in a pension fund or to participate only in the public system and transfer all accumulated assets,” Leppälä told IPE.
“Bulgaria faces severe demographic challenges. Those challenges cannot be overcome alone by the PAYG pensions and public finances in the long run. In the proposed reform, the PAYG and funded pillars would not be complementary to each other, but would be in opposition to some extent. Bulgaria needs both PAYG as well as funded pensions.”
Recent proposals by the Finance Ministry to amend the new law have not provided much reassurance.
“The government is looking for other decisions in the same direction,” said Leppälä.
For example, the Ministry’s proposal to have second-pillar funds relocated to the Silver Fund rather than the PAYG system does not, according to PensionsEurope, offer a solution to the issues arising from the adopted legislative changes.
Furthermore, with the country now actively debating the pension reform, other proposals may come forward.
Leppälä described the Bulgarian changes as part of a worrying development among some Central and Eastern European member states that had adopted mandatory funded pensions prior to EU enlargement.
“That member states take over pension funds runs counter to the long-term policy on adequate, safe and sustainable pensions adopted by the EU and its member states,” he told IPE.
“Taking money out of pension funds will undermine citizens’ trust in funded pensions.”
See Carlo Svaluto Moreolo’s roundup of recent regulatory changes in CEE pensions in the January issue of IPE magazine