Academic publication · Summary
More than two decades after their introduction in 2002, Bulgaria’s universal pension funds still play a marginal role in providing retirement income. The paper asks what prevents them from supporting current retirees, how far they can contribute to pensioners’ income over the next 5 to 15 years, and which regulatory changes would strengthen the fully funded pillar.
Using Monte Carlo simulations of pension-unit values for seven universal funds to 2040, based on returns from July 2004 to June 2025, together with current rules and mortality tables, the authors estimate second-pillar annuities for minimum, average and maximum insurable income. Under current assumptions, the funds cannot fully offset the reduction in the state pension in any of the scenarios. The authors conclude that a fairer method for reducing the individual coefficient and more dynamic investment strategies are needed.
Key findings
- Under current assumptions, universal fund annuities do not fully offset the reduction in the state pension at minimum, average or maximum insurable income, whether after 5, 10 or 15 years.
- The method for reducing the individual coefficient ignores state budget subsidies to the first pillar, so the reduction is disproportionately large.
- A cumulative 152.20% rise in the minimum state pension between 2020 and 2025 sharply raised the savings needed to qualify for a lifelong annuity.
- Annual fund returns since 2004 have ranged between 2.5% and 4%, lagging well behind the growth of insurable income.
- The simulations show that, with returns above wage growth, 15 years of accumulation could offset the reduction even without changing the individual coefficient method.
Why it matters
The paper argues that universal pension funds remain a vital element of Bulgaria’s pension system, but can only become an effective supplement to the pay-as-you-go pillar if the individual coefficient method and investment rules are reformed.
Abstract
Universal pension funds in Bulgaria were introduced in 2002 as part of a major reform of the national social security system. They were intended to become a key component of the pension framework, complementing the pay-as-you-go pillar over the medium and long term. However, more than two decades later, these funds continue to play a marginal role in providing retirement income. This paper addresses three central questions: (1) What are the main factors preventing universal pension funds from effectively supporting current retirees? (2) To what extent can they contribute to pensioners’ income over the next 5 to 15 years? (3) What regulatory changes are necessary to enhance the long-term viability of fully funded pension pillars? The study employs Monte Carlo simulations, descriptive and statistical analysis, and a combination of deductive and systematic approaches. The research shows that universal pension funds could become an effective tool for supplementing the pay-as-you-go component of the social security system – but only if further reforms are implemented. At present, they can hardly fulfil this role due to several factors: the unjust reduction of the individual coefficient, the relatively short accumulation period for the first cohort of retirees, and the assumed conservative investment strategy, which does not favour returns exceeding the growth rate of average insurable income, crucial for the benefit amount due by the first pillar of the pension system.
Keywords: pension funds · investment risk · returns · JEL: G11, G12, G22, G23
How to cite
Milev, J., & Robev, K. (2026). Transforming universal pension fund savings into an effective supplementary mechanism for pension security in Bulgaria. Economic Studies (Ikonomicheski Izsledvania), 35(3), 153–165. https://archive.econ-studies.iki.bas.bg/2026/2026_03/2026_03_08.pdf
