The Capital Schemes Make Savings Work In Favour Of The Depositors, Said Mr Nicola Abadzhiev, Chairperson Of BASPSC
The Universal Pension Fund Deposits Will Be Altered Next Year, Expects Mr Nicola Abadzhiev
Mr Abadzhiev, our country is hosting a prestigious international forum discussing old-age provision. Participants of 40 country are expected to attend th event. What are your expectations
about the conference?
Bulgaria is hosting a forum of worldwide importance, regarding old-age provision for the first time. The conference has already gained a lot of attention. 300 participants of 38 countries have
confirmed their attendance. The guests will be representing pension funds, banks, investment and managing companies, mutual and contract funds etc. Preliminary calculations show that all
participant manage assets of total amount of USD 120 billion. The conference is aiming at finding the best way for the pension system reformations to be conducted. The purpose of the forum is to
synchronise the pension reforms in Bulgaria with the world trends in the field of pension insurance, as well as finding solution for the issues concerning the development of our pension system.
What is more Bulgaria's image will be enhanced as the reform we are conducting will become known on an international level. And there will be a direct contact between the representatives of the
Bulgarian old-age provision business and the international investor and managing companies.
Do the pension schemes of the different countries have common features?
The forthcoming international conference is placing the emphasis on the advance of the capital schemes in the same token tracing the common features especially in the organisation of the second
pillar - since the application of capital schemes is a part of the old-age provision pattern. Some countries like Chile and Kazakhstan have based their pension systems only on capital schemes, i.e.
there is no expense compensation model which the publicly organised social security system suggests. I have to say that as much as the pension systems are alike is as much as they differ. In
Bulgaria we have introduced a classical three-pillar old-age provision system similar to those in Poland, Estonia, Latvia, Hungary so we have the most common feature with the models operational in
these states.
As an EU state can we outline certain pan-European pension issues?
Yes as an EU state we contribute with our issues but we as well inherit the former issues the old EU members have not resolved. Our domestic issues go as far as assets management by the pension
funds go, the annuity rights transfer, capital schemes advance in the field of supplementary old-age provision. We differ from the common EU status where the professional schemes are the most
developed, aka company funds. We founded our system on the base of the universal pension funds , but we have already introduced the first professional schemes - supplementary pension insurance on
professional schemes. That brings us closer to the common EU model . What is left to happen is for the Union to get closer to us. This is no random statement of mine because the forums discussing
the pension issues of the newly acceded members have all concluded that the EU directives focus on the pension schemes and pay little attention to the newer old-age provision patterns and the
supplementary pension funds which are developed enough in the new member states. We would like it if these orders develop in the direction of doing justice to the accomplishments of the newer
pension funds established in the new member states.
Do you expect the supplementary old-age provision funds on professional schemes to be of some interest?
The orders introduced as a part of the Social Security Codex rule that we already have such a pension fund. the other pension insurance companies are planning to establish supplementary funds as
well. . I am thinking that we will be brought around the expedience of these funds but I am not quite positive about the expectations for a vast expansion, since it will take some time for the
difference between the new and the old type of funds to become visible. On the other hand the employers and the staff panels should prepare an assessment for this kind of supplementary pension
insurance in order to settle on a valid decision.
The forthcoming forum is dedicated to capital schemes. Can we hope that the capital scheme is the absolute solution to all main pension issues?
Capital schemes have no alternative as a solution to the pension issues. They are the only instrument that make savings work for their depositors via investment practices. Thus the question reaches
a national level what amount of importance should be placed on the capital schemes. Some countries have introduced capital schemes as the only pension schemes, in other countries like ours we have
a balanced combination between a expense compensation system and a capital system, which the supplementary one. We should consistently pursue the equal development of all three pillars of the
old-age provision system, because that is the only way to create security and certainty for the insured individuals on one hand and merited annuities on the other hand.
Part of the panels are dedicated to the investment policies and the pension funds strategies. How would you comment the Bulgarian pension scheme in this very context?
The investment practices of the assets of the pension funds is an issue all countries are dealing with, as well as all funds which manage that type of assets. These resources should be secured on
one hand and on the other hand they should be effectively invested in order to bring additional income for the insured individuals. This sustained tradition of investment is causing some problems;
what are the best investment strategies within the period of accumulation and the during the annuities payment period. These questions will be taken into consideration at the conference. A separate
session headed by the minister of finance Mr Plamen Oresharski will be discussing the investment policies and the pension funds strategies. I would lite to accent on the issues of most interest to
us: the development of the multifunds in the field of supplementary pension insurance, the best investment strategies within the period of accumulation and the during the annuities payment period
as well as investment risk management as far as the management of pension fund assets goes.
One of the issues to be discussed is the second pillar provision for the individuals born before January 1st 1960. There was a proposal that the universal fund deposit amount 30% of the
taxation deficit and and this money to be managed in an occupational old-age provision scheme(the second pillar). What is your comment?
That is a problem which has to be resolved because the citizens born before December 31st 1959 are disadvanteged to some extent. Even last year we suggested legislative amendments which will allow
these very individuals to avail themselves of the opportunities of investment of their supplementary old-age savings. When the pension system was introduced we had an explanation for this original
model, we were afraid that there might be a collapse of the first pillar as well as provide a swifter transition from an expense compensation system to a capital compensation system. It was a valid
decision but it is no longer useful and we should let the people of different age have equal access to the opportunities.
Few months ago certain organisations commented that the obligatory old-age provision deficit will be overcome by the year 2050...
When analysed the pension system should be considered in general. All assessments should be brought together and all peculiarities of the three pillars born in mind. What does deficit mean when the
second and the third pillars are powered by pension funds assets. These are the personal savings of the insured individuals, amounting more than BGN 1.5 billion. These resources are to compensate
the faults of teh first pillar.
What is your comment about the pension companies' accounting reports for the first three-month period and did they change the prognosis for the years to come?
I am glad that the prognosis we made back in 2000 turned out to be realistic. The prognosis for this year registers a difference of some BGN 100 million. Back in 2000 we expected that the
accumulated assets will come to more than BGN 4.5 billion by 2010 under the condition that the current deposits will not be changed and at a profitability rate of 10%. We are already thinking of
altering the universal pension fund deposits. . The deposits the Bulgarian citizens make are the lowest in all of Europe; some countries like Macedonia, Croatia and Slovenia started at an amount of
7-7.5% and their funds accumulated greater assets. We started at a deposit amount of 2% and for six years it reached 5%, as the current current amount. I am optimistic that the deposit will be
augmented again. Greater obligatory deposits and better voluntary provision preferences will get us the desired level of 80% of the income. As you know some political parties and deputies have
realised the necessity of greater deposits and propose an amount of 10%.
Do you think that the Bulgarian pension systems has undergone some change after the accession?
I do not expect any changes. The experience of other CEE states with a similar
to our system show that no great changes happened. EU experts will be at the conference speaking about development perspectives. My opinion is that the new trends will have impact mainly on the old
member states. There was a forum in Switzerland and Belgium presented its intention of a pension reform which is the same as our pension system. That comes to once more show that we are on the
right path. We and EU follow the world tendencies, and what is more pension issues are no longer within the boundaries of the single country they have moved to a global level and need an efficient
solution.
Do you expect any changes on the old-age provision markets, new companies, mergings, purchases or foreign investments?
I think that we have an ideal number of pension insurance companies. I do not think there will be new companies emerging because the market is so small. But I expect that there will be new
shareholders and new investors which will be buying the already operational companies. There may as well be some mergings. All these will happen in view of the successful business the companies are
doing, the system model is stabilised and the assets are augmenting. We have an amount of BGN 1.5 billion which is expected to come to BGN 2 billion by the end of the year. And then new market
participants may enter, who knows. The pension funds are of interest as institutional investors, that very fact is confirmed by the conference in Varna which will gather officials of the banking
and non-banking field, the managing and investment companies.
