In 2000, a reform in the Bulgarian pension system has started. It began with an increase of the retirement age and the introduction of the point system in retirement as a sum of the insured years of work and age. Private pension funds were created – the third column of the pension system. They gave the opportunity to voluntarily import funds for an additional pension in addition to that that the state pays to them after a certain age. Those born after 1959 have started to pay the obligatory pension benefits and make payments to an additional pension fund – the so-called second pillar of the insurance system in Bulgaria. Today, 10 years later, the pension system in Bulgaria is once again faced with a serious challenge – to continue urgently the reform because the pension system is breaking down under the weight of lack of funds because of the aging population and a number of inadequate decisions taken by several successive governments. The deficit in the National Insurance Institute exceeds 300 mln euros. It has been accumulated throughout the years also as a result of bad management decisions. Social Minister Totyu Mladenov has described them during a discussion organized by the Center for Economic Development and the Balkan Institute of Labour and Social Policy in Sofia.
“One of the biggest mistakes in my opinion has been that there was not a constant monitoring of what was intended and introduced in the Bulgarian legislation regarding the pension system. Politicians let things become distorted and the model started in the beginning of the reform was twisted. The constant reduction of the insurance sums, other disproportions in the pension system, the tolerance of early retirement, the sharp rise of disability pensions – this is only one part of the factors that created a tension in the system and inequality among generations as well as among retired people themselves and the participants in the pension system”.
All this has lead to a situation when 43% of the state budget goes to paying pensions, and only 40% of the funds for them come from insurance benefits of the working people. The remaining 60% are a burden to the budget. The further reduction of insurance benefits with the view of creating more favourable economic conditions for investors has a bad effect on the system, participants in the discussion warned. The present situation requires conditions in which people remain on the labor market for longer. This means a restriction of their opportunities for early retirement and a tight control on the procedures for paying disability pensions. There is also another case that has to be considered, Social Minister Mladenov warned. According to data from the National Insurance Institute, 200 thousand of retired Bulgarians work on labour contracts. At the same time, a huge number of young people are out of job. One of the options discussed is the possibility for either receiving a pension, or working on labor contract. The World Bank Representative for Bulgaria Florian Fichtel has warned that Bulgaria has to continue the reforms in the pension system very urgently because it is faced with the most dramatically dropping numbers of the population as compared to the remaining European countries. This hides serious risks for the insurance system.
According to Florian Fichtel from the World Bank, the exceptions from the normal retirement age must be reduced because now 57% of men and 36% of women start receiving pensions before they have reached the normal retirement age. Besides, he added, the size of insurance benefits in the insurance system is among one of the lowest as compared to other EU member states. “Additional reforms in the system are required”, Fichtel said, “so that Bulgarians could receive sufficient pensions without exposing the macroeconomic stability and economic growth indicators at risk”. The bad economic situation among Bulgarian pensioners is revealed also by the figures described by the former director of the National Insurance Institute Jordan Hristoskov. And namely, between 17 and 20% of Bulgarians in the retirement age live below the country’s poverty line.
Translated by: Rossitsa Petcova
