site.btaSupplementary Retirement Insurance Companies Call for Comprehensive Amendments to Social Insurance Code

Supplementary Retirement Insurance Companies Call for Comprehensive Amendments to Social Insurance Code


Sofia, February 4 (BTA) - The Social Insurance Code should be
amended comprehensively and not piecemeal, representatives of
supplementary compulsory retirement insurance companies told an
extraordinary news conference at BTA on Tuesday evening. They
were reacting to a statement of Finance Minister Vladislav
Goranov who said after a meeting on the pension system that the
companies had suggested that pensions paid by the universal
pension funds they manage should be reduced.

The controversy between the government and the private
retirement insurance companies started late last year when
Parliament amended the Social Insurance Code giving persons born
 after December 31, 1959 the right to choose irreversibly, on a
single occasion, whether to have their supplementary compulsory
retirement insurance handled by the National Social Security
Institute (NSSI) in a first pillar pay-as-you-go system or by a
private universal pension fund in a second pillar fully-funded
system.

Early in January, the Finance Ministry proposed further
amendments allowing people to switch between the NSSI and the
fully-funded system at their discretion once a year. The new
draft amendments also provide that in case a person opts for
insurance at the NSSI Pensions Fund, the money accumulated on
his or her individual account with the universal fund would be
transferred to the State Fund for Guaranteeing the Stability of
the State Pension System (also known as the Silver Fund) within
six months.

Commenting on Tuesday's meeting, Goranov said that since this
latest proposal deprived the opponents of the change of
arguments against the right of choice, they tried to raise the
issue of the percentage by which the private pension funds are
expected to supplement the first pillar pension. He said they
tried to propose a change in the model established in 2002 and
reduce this percentage from the current 28 per cent because of
their "insignificant" real-terms return on investment. He blamed
 the low return on the crisis in the market, the instruments in
which they invest and the fees they charge.

Daniela Petkova, CEO of the Doverie Pension Insurance Company,
denied Goranov's statement. She argued that it is not right that
 people insured in a universal fund should have their pension
from it reduced. "What should be reduced is the percentage by
which a person's pension from the NSSI would be decreased if his
 entire retirement insurance contributions went there," she
insisted.

By law, the social insurance contribution of persons born after
the cut-off date is shared between the NSSI (at a rate of 17.5
per cent of the contributory income) and the private funds (5
per cent).

However, retirement insurance companies claim that the share
going to the NSSI is much larger due to the 12 per cent of the
contributory income paid as a  transfer from the national
budget. On these grounds, they argue that the 5 per cent paid to
 the private funds should correlate to 29.5 per cent and not to
just 17.5 per cent contributed to the pay-as-you-go system. As a
 result, the first-pillar pension should be reduced by less than
 28 per cent.

He said his main concern was that if persons born after December
 31, 1959 draw lower pensions than those born earlier, other
things being equal, and people have no right to choose, the
whole society will have to make up the difference through taxes.

Goranov argued that the 12 per cent of the social insurance
contribution paid by the State to the NSSI is not actually a
retirement insurance contribution proper but rather a transfer
from the national budget offsetting the NSSI's deficit.

According to Petkova, the debate is actually about the State's
contribution of 12 per cent for every working Bulgarian. She
also said that the retirement insurance companies have a
positive real-terms return on investment. "No one can change the
 amount of a second-pillar pension as it depends solely on the
funds accumulated on the individual account," she said.

In late January, the Financial Supervision Commission told the
parliamentary Budget and Finance Committee that the real return
on investment for privately-run pension funds in Bulgaria had
been negative in the last ten years.

Petkova said it would not make any difference if the private
individuals' money was transferred from the universal pension
funds to the NSSI or the Silver Fund. The companies'
representatives said this disguised an attempt to transfer all
or part of the universal pension funds assets to the national
budget. Either way, private individuals' money will be
transferred to the State. "In the final analysis, the point is
whether enough money would be accumulated to compensate people
who would choose the pay-as-you-go option in that outright
nationalization," said Petkova.

This change would increase the deficit of the NSSI Pensions Fund
 and will bring no benefit whatsoever to the State in the medium
 or long term, she argued.