A Conversation With Mr Biser Petkov, FCB Deputy Chairman, Manager Of The Insurance Control Department
Mr Petkov, what is your comment on the superannuation funding result for the first half of the year?
The results confirm the tendency of the dynamic development of the superannuation funding market. The overall amount of the net assets accumulated by June 30th come up to BGN 1 262 236 thousand,
registering a 34. 4% rise as compared to the net assets amount by June 30th 2005. There is a tendency that the superannuation funding companies buy state securities more rarely and thus their
portfolio is more diverse. The new law amendments introduced in February changed the investment regimes, the state securities purchase limitations were abolished, thus a reformation of the
investment portfolios was launched. They started buying securities, sold on regulated markets, not state securities. A representative example is the fact that the investments of the universal
superannuation funding companies under the form of public corporations shares amounted BGN 64 403 thousand, i.e. 12. 88% of all the investments of these companies. The universal funds investments
in shares have increased three times and a half for one year only. The superannuation funds are a brand new market target for the joint- stock companies.
The reports read that the additional superannuation funding is doing quite well in 2006, but in fact the voluntary superannuation funding is not even near its optimum. What is your
comment?
I do not agree that the voluntary superannuation funding is not advancing. There is a firm tendency showing that more and more people make deposits and the net assets of the funds increase. The
insured individuals numbered 557 841 by June 30th, i.e. 18 099 more as compared to the same period of 2005. Simultaneously, the assets have been augmented by BGN 80 million and reached the amount
of BGN 444 607 thousand.
It is true that the voluntary superannuation funding is developing slowly, as compared to the compulsory universal funds or the collective investment schemes (investment companies and contract
funds). In spite of the severe competition and the new savings forms, the voluntary superannuation funds are greater than the collective investment schemes. The voluntary superannuation funding has
been operational for ten years and continues to be one of the most common non- banking savings form. This very market sector has a lot of potential for development. The only premise to stimulate
this development is the wages raise, so the Bulgarian households be able to deposit savings on favourable regulatory conditions. These conditions include taxation relief and fair competition.
There need to be a legislative possibility for an superannuation funding company to establish and manage more than one voluntary fund, differentiated by their risk profiles.
The Financial Control Board granted a ninth licence to Toplina Superannuation Funding Company. Do you expect a market share changes?
Nine superannuation funding companies were granted licence in 2000, Toplina is the second company, the first is DZI- Superannuation Funding- which was granted a licence for additional
superannuation funding. Meanwhile Berlinische Lieben ceased its activity voluntarily in 2001, two other companies merged in 2003. Thus five years after the three- pillar model was introduced the
number of the superannuation funding companies is the same as it was in the beginning.
The Bulgarian market is different from the situation in other countries where the companies become fewer and fewer due to merges. I myself think the reason is that the superannuation funding
companies offer a wide range of services. The tendency of concentration is more typical for the compulsory deposits section since the system was specifically launched (the market is divided into
generations) and due to certain regulatory requirements as well.
To answer your concrete question I would say that no essential market share changes are expected. The new company has not been granted a permit to manage a fund so it cannot do business.
Are there any other licence applications?
Presently there are no applications submitted to the FCB. I think the new law amendments allowing voluntary superannuation funding on professional schemes may be of some interest. The deposits of
the citizens will be accumulated in a different kind of funds, which will be established and managed by licenced companies.
Are foreign investors interested in our superannuation funding market?
The foreign investors are present on the Bulgarian market. Foreign investors have major shares in two
superannuation companies. Wiener Stadtische recently bought 60% of TBIH capital, the Austrian insurer manages Doverie Superannuation Funding Company indirectly.
The professional superannuation schemes were introduced this year, in order to unify our legislation with the EU one. Is there some interest in the fourth type of fund?
The professional schemes will become operational when Bulgaria is an actual EU member. The superannuation funding companies participated in preparing the bill .
What is your comment on the difference between the Bulgarian superannuation funding model and the one of the EU countries?
The superannuation funding reform took place in 2000, following the World Bank model featuring some traits that suit the Bulgarian market. Bulgaria is the first South- Eastern European country to
introduce a thoroughgoing reform and our experience is quite interesting for the foreign observers. There are several differences between ors system and the one of the EU countries, where the
superannuation deposits practice is connected with the employment practice. Employers and social partners have a major part in establishing and managing the so called professional schemes.
Our system has some certain advantages one of which is that the deposits are in individual accounts and thus the person’s superannuation rights are transferable. The situation in the EU is
different, losing or changing one’s job may result in losing their superannuation rights. Other advantage is that the schemes suggest deposits of limited amount.
One of the most important issues is the taxation legislation. The Association claimed that the new taxation law is deterring the superannuation funding reformation. What is your
comment?
The Financial Control Board stated its opinion in a letter addressed to the minister of finance. Our position more or less coincides with the one the Association stands for. Tax relief is essential
for the development of the superannuation funding companies and taxation terms need to be steadily fixed.
Don’t you have the feeling that most Bulgarian citizens have no idea what sums of money are they going to receive after pensioning off?
The first obligation of every superannuation system is to provide adequate pensions. The system works with a coefficient of the income to determine the pension amount. The long- term accounts of
our system suggest a coefficient built on the three pillars totally coming to 70- 75%, 40% from the first pillar, 15% from the second and 10- 20% from the third. The deposits are limited that is
why they do not guarantee a certain pension amount. There are few factors on which this amount depends- the deposits amount, the realized investment income, the fees and deductions etc.
The Financial Control Board is organizing a forum in the fall. Some further information?
FCB organizes an international forum to take place in October, the event is entitled FCB Administrative Stability for the Application of EU Legislation in the Field of Securities, Superannuation
Funding and Insurance. A lot of foreign lecturers are invited. Some of the topics are include discussions on the importance of the superannuation funds, stable and adequate pensions amount, and the
regulation of the payments.
