Bulgaria's pension reform passed on the eve of Christmas and almost immediately put on the freeze following strong criticism, includes among other things, the opportunity for choosing where to pay contributions for the mandatory second pension - to either existing universal pension security funds or to the state-run giant NSSI, the National Social Security Institute. So far, contributions for the second pension have been paid to one of the nine pension funds. The private pension security funds have interpreted the latest changes in the system as an attempt to annihilate their business that seems unlikely to resist the competition of the heavily subsidized National Social Security Institute which by sporting an aura of unshakable stability might attract their own customers. The reform has stopped before it was even triggered with the remark that by end-March all contentious issues would be discussed and cleared.

However, it seems that the government is keen to change the environment in which private pensions funds work and to make their survival a challenge. Some have seen a renewed attack against them in the conduct of the influential head of the Parliamentary Committee on Budget and Finance Menda Stoyanova who looks quite determined to change the rules in pension security. For the sake of greater transparency and better protection of the insured parliament has asked the Financial Supervision Commission to come up with detailed information about the business, investments and financial results of private pension security companies so that problems are duly discussed and decision-making takes place ahead of the deadline for the pension reform restart on 1 April.  

Experts believe that Menda Stoyanova has a few good reasons to cast light on the business of private pension security companies. All the more so that more than 3 million Bulgarians pay contributions to them, and the capital accumulated by them comes to about 3.5 billion euro. The chairperson of the parliamentary committee is convinced that “for the past 12 years the profitability of second pension money has been negative and below accumulated inflation for the period, meaning that pension money has actually been melting.”  

Private pension security companies have denied such allegations: the Chairman of the Association of Supplementary Pension Security Companies Nikola Abadzhiev has said that “the average profitability of funds in 2002-2013 was 5-6%, and from September 2012 till September 2014, it was 6-7% on an annual basis". Fact is however that pension companies earn many times more from fees than from their own capital management. During the first six months of last year pension funds deducted more than 30 million euro in fees to manage the contributions of their customers better. In the meantime, by managing their capital funds they were able to make the modest amount of 2.3 million euro.

Further doubts about the business of the pension security funds arise from the fact that no one discusses their operations in public, and that they do not advertise in media at all despite strong competition in the sector. They either have nothing to advertise or look upon advertising as a frill they don't need. For companies who should compete for every single customer, this conduct is strange and contrary to market logic. It is not accidental that PM Boyko Borissov himself defended pension reforms proposed by the ruling party with the need to urge pension funds to become more active and to boost competition in the sector. On the other hand however, the independent watchdog, the Financial Supervision Commission, and the law regulate the operations of pension funds so powerfully that in practice there is no room for any viable entrepreneurship or innovative insurance products in their work.  

In any case the step launched by the Chairperson of the Parliamentary Committee on Budget and Finance Menda Stoyanova for greater transparency and more information about the operations of private pension security companies is useful and serves the interest of the those companies' customers.  
 
English Daniela Konstantinova