In 1997 the Association of Supplementary Pension Security Companies was established with the aim to unite the whole branch, namely for these years the new activity in Bulgaria – the supplementary pension security. Since then we unite the efforts of all pension insurance companies and participate actively with own capacity, opportunities, expertise in the implementation of the pension reform, forming and improving the legislation in the sphere of the pension insurance. We strive to actively and successfully cooperate with regulators and key stakeholders for the pension industry – Financial Supervision Commission, Ministry of Finance, Ministry of Labor and Social policies, the relevant Committees in the National Assembly, with the major trade unions and employers’ organizations. For the past years, the Association and its members are proud that we have performed these functions and the Pension Association was always an important factor in the implementation of the pension reform and the development of the three-pillar pension model in Bulgaria. Systematically we demonstrate and we had proved that this model is the only correct solution for the implementation of more adequate pension payments and higher income for the people in their golden pension ages. Over the quarter of a century the supplementary pension insurance established itself as an integral part of the Bulgarian pension model, which consists of three pillars:
First pillar – State social insurance (SSS) – covers the entire working population of the country. It operates on a cost-covering basis. The pensions of the current pensioners are currently paid with the contributions of the employees. It is implemented by the National Social Security Institute (NSSI) and in 2021 it is forecasted to register a gigantic deficit of over 6 billion, already planned to be financed in the state budget through transfers.
Second pillar – supplementary mandatory pension insurance (SMPI) from private pension funds – operates and invests on the capital markets. Provides an early retirement pension for those working under the conditions of the first and second categories of work and / or a supplementary old-age pension for those born after 31.12.1959. Exactly this payment process began in September 2021.
Third pillar – supplementary voluntary pension insurance (SVPI) of a voluntary nature. Third pillar – supplementary voluntary pension insurance (SVPI) of a voluntary nature. It works on a capital principle. Allows the receipt of old-age, invalidity and survivors’ pensions. It is carried out by private pension funds.
Unlike the insurance in the state solidarity pillar, the accounts of the insured in the capital pillar, the universal and voluntary pension funds, are inherited by law from the heirs in full. Upon transfer of the money from UPF to NSSI or Silver Fund, the heirs lose the right to receive this money. There is obviously a lack of information on how the solidarity pension fund managed by the National Social Security Institute works and what exactly happens to the pension savings that some people transfer from the second to the first pillar. It is precisely the above described significant differences that will come to the surface now at the start of the payment of the second pensions from the capital pillar (universal funds) through inheritance, as well as on the manner of transparent and efficient management of funds.
Achievements of pension companies for the past period
As of June 2021, more than 4 million and 800 thousand people are insured in the four types of private pension funds. The assets of the pension funds exceed BGN 18.5 billion, and the pension insurance market has fully recovered after the high turbulence and temporary declines in 2020, marked by the Covid pandemic. The companies have been achieving good rates of return of over 4% for insured persons since the beginning of the year, despite the imposed policies of ultra-low and negative interest rates by the Central Banks. The funds managed to successfully position their portfolio investments in an environment of higher economic activity, improved market conditions and rising prices of financial instruments on international capital markets. Since the establishment of the pension funds, the average annual return in the period from 2002 to June 2021 for UPF /universal pension funds / has reached 5.00%. For PPF /occupational pension funds / it is close to 4.95%, and 5.30% for voluntary pension funds.
Upon the start of the pay out phase of the second pensions from the universal funds as of September 01, 2021 a new and important chapter in the development of national pension system has begun.
After almost three-years of efforts and intensive activity of the interdepartmental working group, led by the MLSP with the key participation of FSC, MF, unions and employers, in which BASPSC unwaveringly partnered and made a significant contribution for the necessary legal amendments in the Social Insurance Treaty approved by the National Assembly in March/April 2021. Those changes have been crucial to ensure the required regulation of pay out phase of the supplementary pensions from the universal funds.
The nine pension insurance companies were fully prepared to kick off and conclude new contracts and begin as of September after the implementation within ultra-short deadlines of the changes in the Social Security code and the new updates by the FSC in the related ordinances. The pension companies invested in IT systems and modern technologies in order to serve the newly established funds for repayment and created necessary process to perform pay out of pensions to insured persons who have reached retirement age.
We considered that massively, the insured persons are not properly informed and it is extremely important for them to know that the pension companies begin to guarantee at this stage with their own funds the accumulated gross installments in their special pension accounts in the phase of accumulation for the last almost twenty years. Practically with this decision the retirees are entirely protected from negative returns, the fees of the funds are fully set off before their funds are transferred to the new repayment funds, which by law are managed much more conservatively than the universal ones.
Depending on the individual needs Insured persons can now choose between three types of lifelong pensions such as: a) a lifelong pension without additional conditions, b) a lifelong pension with a guaranteed payment period or c) a lifelong pension with deferred payment of part of the funds until reaching the age chosen by the pensioner. The second main product is a pension with a pre-agreed deferred payment, while the third product for a single payment is for persons with small accounts below BGN 900, where it is possible to pay the entire amount to the person once.
At the moment, a large part of the clients of the funds, who do not postpone their retirement, sign contracts based on the selected product and in the next 1-2 months they will start receiving pension payments on their bank accounts in Bulgarian levs. As we had expected, they are driven to a different product than the lifetime pension, namely the deferred payment alternative. The preferred monthly amount is also not a surprise and amounts to BGN 300, which is the maximum allowed by law and corresponds to the minimum pension amount.
For the first month from the start of the phase is characterized by the fact that in case of interest in the lifelong pensions, the persons are oriented mainly to a lifelong pension with a period of deferred payment until reaching a certain age. In this case, too, there is a tendency to the desired amount, which is the maximum by law for this period, namely not less than BGN 300 per month, after which the pensioner will receive from the funds not less than the minimum amount of the monthly pension. from the second pillar, which by law is 15% of the minimum pension from the National Social Security Institute – currently BGN 45.
In all pension companies there is a gradual but steady increase in interest, but the number of contracts is still relatively low. According to the data collected by the BASPSC for the pension companies, in the first month a total of over 250 contracts were concluded, of which 25 were lifelong pensions mainly by women who are also the first pensioners of the second pillar. The numbers will increase faster in the next year, when even more insured persons in the mandatory second pillar will reach retirement age. The report on the concluded contracts for supplementary pensions will be sent monthly by the pension companies to the Financial Supervision Commission, which will summarize and publish on its website, and can be monitored by all interested parties.
Along with the successful start of second pillar pension payments, BASPSC and employers’ organizations will continue to insist that the remaining changes in Social Security Code be made in order to completely eliminate the injustice of reducing the state pension by a lower percentage, but not completely accurate coefficient of reduction yet. When determining the contribution to the Social Security Pensions Fund, all subsidies from the state budget should be taken into account in the calculations of the coefficient, regardless of the used formal name or definition in the law.
Participation in the institutional life of the financial sector and work with the members of ABB.
BASPSC actively cooperates with all organizations and institutions in the financial sector of Bulgaria, including the Association of Banks in Bulgaria and its members. We have been working together over the years and currently with the banks being the main government securities market makers, who regularly submit to our Association a report on the market prices of the main government bonds used for the proper formation of the daily valuation of pension fund assets by our Price Information Center in support of all pension insurance companies. The Bulgarian depository banks are taking on an increasingly responsible role under the new regulations overseeing the activities of pension funds. They store and revalue investment instruments on a daily basis, as well as available liquid assets of the funds on the basis of previously concluded contracts for custody services.
The investment units/departments of the pension companies have been regular counterparties of banks for years for securities trading, foreign exchange transactions and hedging strategies. With the registration of the new specialized repayment funds and the expected growth of their assets, this joint collaboration will increase, and will continue to deepen in search of different investment solutions that meet the more conservative investment policy of these specific funds.
A very recent example of cooperation with ABB members is the fact that pension companies have again turned to BNB-approved commercial banks for servicing and custodial services for the newly created under the new changes in Social Insurance Code Lifetime Pension Repayment Funds and Deferred Payment Funds and both they have welcomed and addressed with the needed professional attitude, cooperation approach and observance of high standards.
Within the payout phase, we expect even more fruitful joint collaboration of the pension companies, members of BASPSC, with the Bulgarian commercial banks in connection with the legal obligation to pay pensions to bank accounts only in Bulgaria and in BGN to persons who have reached retirement age only, restricting the repayment of pensions abroad.
There are quite a few other examples of common actions that help and strengthen the development of the financial instruments markets in Bulgaria and the capital market in general. In December 2020, ABB supported the development of the second pension pillar and the pension insurance companies as institutions with a high contribution to the economic stability in the country and the development of the Bulgarian capital market, by giving its official comments and guidelines in an official positive opinion on the bill during the public consultation of the proposed changes to amend the Social Security Code (CSC) in order to ensure the start of the second pensions.
The timely adoption of these amendments to the Code was a corner stone for the creation of a detailed legal framework regulating the process of payment of the pensions from the universal pension funds, letting the Bulgarian pension companies today to acclaim with the successful start of the payment of supplementary pensions from the capital pillar.
