Bulgaria Plans Pension System Changes to Cover DeficitSlav Okov
Bulgaria’s government plans to make use of private pension funds optional and prompt people to move their accounts to the state pension fund to cover its widening deficit.
Parliament’s Finance and Budget Committee approved draft legal amendments meant to steer people away from private funds beginning next year, Menda Stoyanova, head of the committee, said in Sofia today. Lawmakers will vote on the amendments later this week in a plenary session. Private pension funds’ assets amounted to 6.4 billion lev ($4 billion) on Sept. 31, according to the Financial Supervision Commission.
“Such a decision will break down the pension model,” Nikola Abadjiev, chairman of the Bulgarian Association of Supplementary Pension Security Companies, told reporters in Sofia today. “The goal is to give almost 7 billion lev to the National Social Security Institute without any effect.”
Prime Minister Boyko Borissov’s cabinet took office last month after political turmoil caused five government changes in two years in the European Union’s poorest country by per-capita output. Standard & Poor’s cut Bulgaria’s credit rating to junk on Dec. 12 citing weakness in the banking system after the country’s fourth-largest lender failed in June prompting government support.
The government sold 1.5b lev bonds on the domestic market Last month and took a 3 billion lev bridge loan, raising this year’s budget deficit to 3.7 percent of gross domestic product. The deficit in the state pension fund, known as the National Social Security Institute is estimated at 5 billion lev for this year.
Bulgaria reformed its pension system in 2000, setting up private pension funds, which would add to the pension paid by the state pension fund. Under the new amendment Bulgarians will have to declare whether they want to move their accounts to the state fund without having the right to change their decision.
Those who start work in 2015 will be assigned to the state fund by default, unless they state otherwise. The universal funds cover 3.4 million people.
“If there is a massive withdrawal from the private funds, there will be an impact on the local capital market and in the financing of domestic state securities,” Daniela Petkova, Chairwoman of Pension Insurance Co. Doverie AD in Sofia, said by phone today. “All funds are invested” and the new law may trigger sales of securities.