‘Setting up company pension schemes that do not protect adequately the interests of the insured and that would not be subject to the presently existing system for supervision and regulation may be the greatest detriment to our pension system,’ the Executive Director of pension insurance company Lukoil Kiril Chervenkov said. That will, in his opinion, result in the instability of the pension model in the country and would shake the public trust in insurance institutions.
We have met on the occasion of the forthcoming unification of the Bulgarian legislation to the European with regard to pension insurance and in particular, the suggestion for adoption of the so called company pension schemes. Would you comment on that?
As ridiculous as it may sound, the EU member states turned out to be more unprepared than us in the sphere of pension insurance. Problems in Bulgaria are presently arising namely from the fact that
West Europe tries to thrust upon us its pension insurance schemes, which are not the best and up-to-date at the moment. The Bulgarian pension model is thought to be one of the best by foreign
observers. Yet last year at an international conference organized in Bulgaria, it was said that Bulgaria had set an example in the sphere of pension insurance and some countries are even drawing on
our experience.
Company pension schemes have long existed in the country. In fact, these are pension schemes set up by the employers in order to pay out of supplementary pensions to their employees. The problem,
however, arises from the implementation of that scheme within the specific Bulgarian pension model. In that relation we should point out that the legislation currently into effect in the country
does not allow the functioning of pension schemes of that kind.
In my opinion, in Bulgaria there are now well-grounded and regulated by law company pension schemes in the form of voluntary pension funds, in which employers can insure their employees. Such fund
is the voluntary pension fund Lukoil Grant, managed by our company. Major shareholders in the company are the companies from the LUKOIL Group in Bulgaria. Each one of them is paying out insurance
contributions to its employees under employer contracts with the Fund. The pension fund managed by us is currently paying out pensions to 242 retired. Since its establishment a total number of 502
insured have received pensions. The average amount of the pension totals BGN 119. Therefore, we are using the same kind of pension scheme although we are not a company fund of European type. Our
company is registered and complies with all the requirements and conditions as all other pension insurance companies in Bulgaria. People insured in pension funds managed by the company number over
130,000, though there are no more than 8,000 people working in the companies of the LUKOIL Group in Bulgaria.
Which are, in your opinion, the most significant differences in the recently suggested company pension schemes?
Firstly: direction of contributions accrued. In Bulgaria contributions paid out by employers have been until now transferred to the insured person’s individual account with the voluntary pension
fund. In company pension schemes the contributions are accrued in a mutual fund.
Secondly: transfer and keeping of insurance rights. According to the Bulgarian legislation in case relations between employers and insured employees are terminated, employees shall retain their
pension rights. With company pension schemes in case of a failure to meet some of the employer’s conditions (for example, if the employee resigns before the expiring of a particular set term), the
insured may lose their pension rights.
Thirdly: supervision over the investment and spending of the capital. Investment of the capital of the insured is being done under clear and strict legal regulations. Over the investment activities
is being exercised preliminary, current and subsequent supervision on the benefit of the state and implemented by the Finance Supervision Commission. Special attention is paid to clashes of
interest of shareholders and employers. This guarantees that in case of the employer’s bankruptcy, insured persons will not lose their
money.
Further: capital management. Management of pension funds’ capital in Bulgaria is implemented by managing companies established especially for the purpose, namely pension insurance companies.
According to the legislation in effect they have the right to carry out only that activity. Furthermore, the pension insurance company and the pension funds managed by it are both legally and
financially separated. This means that they are separate legal entities, having separate registrations, bank accounts etc. That makes it practically impossible to transfer capital from the fund to
the managing companies and the other way round, unless in cases explicitly provided for by law. This is yet another guarantee that pension funds cannot go bankrupt. Under company pension schemes it
is a frequent occurrence that bankruptcy of the company leads to bankruptcy of the pension scheme set up by it.
And last but not least: principle of determining the amount of the pensions. Until now pensions in Bulgaria were determined by defined contributions schemes, i.e. amount of the contributions is
preliminary determined, while pension is determined on the basis of the capital accrued in the individual account of the insured person as at the date of their retirement. Company pensions have
taken up the principle or defined pension schemes, i.e. pension is preliminary determined and the pension holder is legally obliged to buy it at a preliminary determined price. This is quite
difficult to implement as it requires en exact scheme of what is going to happen in a future period of, let’s say, 30 or 40 years.
In my opinion, Bulgaria’s EU accession requires the enactment of the European directives as regards the pension insurance. That should not, though, be done without taking into consideration the
specific characteristics of our pension model. Setting up company pension schemes that do not protect adequately the interests of the insured and that would not be subject to the presently existing
system for supervision and regulation may be the greatest detriment to our pension system.
What does your company expect in 2006?
We hope that it will be a better year than 2005. We have changed the structure of our whole trade activity and the results from the last quarter prove quite promising – three times more people prefer to join us than those who would like to break off. Lukoil Garant has had the highest rates of profitability amongst the universal pension funds and ranks third amongst voluntary pension funds. We hope that would be one more reason for people to seek our services. We have the missionary duty to explain the public the benefits from being insured.
‘Setting up company pension schemes that do not protect adequately the interests of the insured and that would not be subject to the presently existing system for supervision and regulation may be
the greatest detriment to our pension system,’ the Executive Director of pension insurance company Lukoil Kiril Chervenkov said. That will, in his opinion, result in the instability of the pension
model in the country and would shake the public trust in insurance institutions.
We have met on the occasion of the forthcoming unification of the Bulgarian legislation to the European with regard to pension insurance and in particular, the suggestion for adoption of the so called company pension schemes. Would you comment on that?
As ridiculous as it may sound, the EU member states turned out to be more unprepared than us in the sphere of pension insurance. Problems in Bulgaria are presently arising namely from the fact that
West Europe tries to thrust upon us its pension insurance schemes, which are not the best and up-to-date at the moment. The Bulgarian pension model is thought to be one of the best by foreign
observers. Yet last year at an international conference organized in Bulgaria, it was said that Bulgaria had set an example in the sphere of pension insurance and some countries are even drawing on
our experience.
Company pension schemes have long existed in the country. In fact, these are pension schemes set up by the employers in order to pay out of supplementary pensions to their employees. The problem,
however, arises from the implementation of that scheme within the specific Bulgarian pension model. In that relation we should point out that the legislation currently into effect in the country
does not allow the functioning of pension schemes of that kind.
In my opinion, in Bulgaria there are now well-grounded and regulated by law company pension schemes in the form of voluntary pension funds, in which employers can insure their employees. Such fund
is the voluntary pension fund Lukoil Grant, managed by our company. Major shareholders in the company are the companies from the LUKOIL Group in Bulgaria. Each one of them is paying out insurance
contributions to its employees under employer contracts with the Fund. The pension fund managed by us is currently paying out pensions to 242 retired. Since its establishment a total number of 502
insured have received pensions. The average amount of the pension totals BGN 119. Therefore, we are using the same kind of pension scheme although we are not a company fund of European type. Our
company is registered and complies with all the requirements and conditions as all other pension insurance companies in Bulgaria. People insured in pension funds managed by the company number over
130,000, though there are no more than 8,000 people working in the companies of the LUKOIL Group in Bulgaria.
Which are, in your opinion, the most significant differences in the recently suggested company pension schemes?
Firstly: direction of contributions accrued. In Bulgaria contributions paid out by employers have been until now transferred to the insured person’s individual account with the voluntary pension
fund. In company pension schemes the contributions are accrued in a mutual fund.
Secondly: transfer and keeping of insurance rights. According to the Bulgarian legislation in case relations between employers and insured employees are ….. , employees shall retain their pension
rights. With company pension schemes in case of a failure to meet some of the employer’s conditions (for example, if the employee resigns before the expiring of a particular set term), the insured
may lose their pension rights.
Thirdly: supervision over the investment and spending of the capital. Investment of the capital of the insured is being done under clear and strict legal regulations. Over the investment activities
is being exercised preliminary, current and subsequent supervision on the benefit of the state and implemented by the Finance Supervision Commission. Special attention is paid to clashes of
interest of shareholders and employers. This guarantees that in case of the employer’s bankruptcy, insured persons will not lose their
money.
Further: capital management. Management of pension funds’ capital in Bulgaria is implemented by managing companies established especially for the purpose, namely pension insurance companies.
According to the legislation in effect they have the right to carry out only that activity. Furthermore, the pension insurance company and the pension funds managed by it are both legally and
financially separated. This means that they are separate legal entities, having separate registrations, bank accounts etc. That makes it practically impossible to transfer capital from the fund to
the managing companies and the other way round, unless in cases explicitly provided for by law. This is yet another guarantee that pension funds cannot go bankrupt. Under company pension schemes it
is a frequent occurrence that bankruptcy of the company leads to bankruptcy of the pension scheme set up by it.
And last but not least: principle of determining the amount of the pensions. Until now pensions in Bulgaria were determined by defined contributions schemes, i.e. amount of the contributions is
preliminary determined, while pension is determined on the basis of the capital accrued in the individual account of the insured person as at the date of their retirement. Company pensions have
taken up the principle or defined pension schemes, i.e. pension is preliminary determined and the pension holder is legally obliged to buy it at a preliminary determined price. This is quite
difficult to implement as it requires en exact scheme of what is going to happen in a future period of, let’s say, 30 or 40 years.
In my opinion, Bulgaria’s EU accession requires the enactment of the European directives as regards the pension insurance. That should not, though, be done without taking into consideration the
specific characteristics of our pension model. Setting up company pension schemes that do not protect adequately the interests of the insured and that would not be subject to the presently existing
system for supervision and regulation may be the greatest detriment to our pension system.
What does your company expect in 2006?
We hope that it will be a better year than 2005. We have changed the structure of our whole trade activity and the results from the last quarter prove quite promising – three times more people prefer to join us than those who would like to break off. Lukoil Garant has had the highest rates of profitability amongst the universal pension funds and ranks third amongst voluntary pension funds. We hope that would be one more reason for people to seek our services. We have the missionary duty to explain the public the benefits from being insured.
