MOLDOVA PENSION REFORM workshop, Chisinau June 10 – 11, 2008. BULGARIAN PENSION SYSTEM PhD. JORDAN HRISTOSKOV. MAIN TOPICS. General overview of Bulgarian pension system and reform
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BULGARIAN PENSION SYSTEM
PhD. JORDAN HRISTOSKOV
Fund “Work injuries
0.4 – 1.1 %
5 % of which
for the II pillar
Conclusion: the contributive period increases at the expense of the pension receiving period
Supplementary voluntary pension insurance
Private voluntary pension funds (since 1994);
Occupational pension funds, based on collective labor agreements (since 2007)
Mandatory public social security
Supplementary mandatory pension insurance
Private pension funds
Universal (open) pension funds – mandatory insurance for those born after 1959
Occupation pension funds – mandatory for workers from special categories of labor
In order to create more incentives for longer contributing, following polices were taken:
The new legislation (2000) introduced a new benefit formula. All pensions had been recalculated applying the following formula:
Old Age Pension = CP * 1% * IC * AMII (12),
The pension formula does not comprise directly the replacement rate. The pension level depends on the following three elements:
1. Length of participation in the system (each year of participation brings 1% of the average monthly insurable income. For the period of postponed retirement 1 calendar year of service brings 3% (5% from January 2009).
2. The pensioner’s individual coefficient – a ratio between the individual insurable income and the average country insurable income. This coefficient is a quantitative indicator for one’s contribution in the insurance system and stimulate the employee to require that their employers make social contributions on their real salary and not only on the minimum wage established for the country (which was a practice in private business). When calculating the individual coefficient, three consecutive years out of the last 15 years of service, before 31 December 1996, are selected by the person. The period after 31 December 1996 until the moment of retirement is included compulsory. In that way, the reference period in the benefit formula for those entering the labour market after 1994 is the whole working life.
3. The average monthly insurable income for the previous 12 months before retirement. This is an element, which creates a link between pension levels and the income which have to be replaced. This indicator is calculated and reported by the National Social Security Institute every mouth.
The benefit formula for invalidity pensions is also linked with real contributions with some particularities:
The contributive pensions, financed by fund “Pensions” are: old age pensions, general sickness invalidity pensions and survivals pensions; occupational sickness pensions are financed by fund “Occupational accidents and occupational diseases”;
These pensions are strongly linked with personal contribution throughout the whole working live of the insured person and they have minimum and maximum limits. The max – min ratio at present is 1 : 5
Non- contributive pensions are: social old age pensions, social and military invalidity pensions, personal pensions for orphans. Those pensions are financed by fund “Non labor pensions” with the main source – state budget transfers. The non-contributive pensions are flat rate. The social old age pensions are means tested – they are granted at the age of 70 if the average income per person in the family is below the minimum guaranteed monthly income (35 EUR).
Those policies are administered by Social Assistance Agency at the MLSP. The non-contributive pensions are still managed by National Social Security Institute, but there is a plan for shifting to the Social Assistance Agency.
The workers are eligible for early pension under the following conditions:
If these conditions are not covered the workers can get their money as a lump sum or as programmed withdrawals when they reach the standard pension age. They can also transfer the accumulated amount in their universal pension fund, if they are born after 1959.
Pension coverage in Bulgaria/private pension funds members as % of the labor force/
Source: Financial Supervision Commission
for the parametric part of the reform
Risks for the system part of the pension reform
Two alternative solutions are under discussion in the public space: