Academic publication · Summary
The paper assesses the reforms of Bulgaria’s social security system since 2000, focusing on pensions, and asks whether second- and third-pillar pension funds have become the stabilising factor they were designed to be. It reviews the three-pillar structure, the option to leave the second pillar introduced in 2015 and the payout phase that began in 2021.
Using descriptive, comparative and statistical analysis, the authors compare the funds’ returns from 2004 to 2023 with inflation, bank deposits and equity indices. Both fund types beat inflation until 2021, but the losses of 2022 left real returns for the whole period negative. As most of the first retirees could not finance a lifelong annuity, the authors conclude that the funds cannot currently be considered a stabilising factor, and argue for greater investment flexibility, such as a multifund system.
Key findings
- Between 2004 and 2021, universal and voluntary pension funds outperformed inflation, with real returns of 1.05% and 9.03% respectively.
- In 2022, universal and voluntary funds lost 23.52% and 22.0% respectively in real terms.
- Over 2004–2023 as a whole, real returns were negative: −18.54% for universal funds, −8.68% for voluntary funds and −15.04% for bank deposits.
- Most of the first retirees could not accumulate enough to finance a lifelong annuity: by the end of 2023, 18,024 people received periodic payments, compared with 2,632 receiving annuities.
- The authors identify very conservative investment behaviour by some pension companies, comparatively high fees and low realised returns as factors that must be addressed.
Why it matters
The authors argue that pension companies need more investment flexibility than a single portfolio allows, since the satisfaction of insured individuals is crucial to preserving the fully funded component and enabling it to play a stabilising role in the pension system.
Abstract
The Bulgarian social security system underwent significant reforms in the late 1990s, transforming it into a three-pillar structure. The first pillar operates on a pay-as-you-go principle and comprises five distinct funds: the Pension Fund, General Disease and Maternity Fund, the Occupational Accident and Professional Disease Fund, the Unemployment Fund, and the Non-Work-Related Pension Fund. The second pillar is supplementary compulsory pension security, which operates on a fully funded principle. Pension companies manage defined contribution pension plans based on individual accounts. The third pillar is supplementary voluntary pension security, also based on a fully funded principle, allowing individuals to accumulate additional resources to finance supplementary pension benefits.
The implemented reforms aimed to address the unfavourable demographic changes expected to unfold in the coming years, which would place significant pressure on the country’s pension system. The establishment of the second and third pillars was expected to enhance the financial stability of the system and increase the adequacy of pension benefits for future generations of retirees. More than two decades later, the demographic structure of the Bulgarian population continues to deteriorate, corresponding to earlier predictions. However, several factors have adversely affected the second and third pillars, preventing them from fully supporting the first pillar as intended.
The main aim of this article is to assess the reforms implemented in the Bulgaria’s social security system over the years, the problems encountered, and the solutions required. The focus is on the pension system, as it absorbs the greatest part of the resources and affects the largest portion of the population. The first part of the paper describes the reforms and their expected results, while the second part analyses the current problems of the system and possible future reforms that could improve its long-term sustainability.
Keywords: Bulgarian social security system · pension funds · risks · insured individuals
How to cite
Milev, J. N., & Robev, K. (2024). Pension funds in Bulgaria – are they a stabilizing factor for the social security system in the country? Zeszyty Naukowe Politechniki Poznańskiej. Organizacja i Zarządzanie, 90, 61–80. https://doi.org/10.21008/j.0239-9415.2024.090.04
