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SUPERVISION OF PENSION SYSTEMS – CURRENT TRENDS AND ISSUES. INTERNATIONAL EXPERIENCE. PENSION FUNDS REGULATION AND SUPERVISION IN BULGARIA BISSER PETKOV Deputy Chairman of Financial Supervision Commission Head of Social Insurance Supervision Division. Agenda.

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supervision of pension systems current trends and issues international experience
SUPERVISION OF PENSION SYSTEMS – CURRENT TRENDS AND ISSUES. INTERNATIONAL EXPERIENCE.

PENSION FUNDS REGULATION AND SUPERVISION IN BULGARIA

BISSER PETKOV

Deputy Chairman of Financial Supervision Commission

Head of Social Insurance Supervision Division

1 development and regulation of funded pension provision 1 12
1. Development and Regulation of FundedPension Provision(1/12)

Background

1994 – Voluntary pension funds launched - fully funded basis,individual accounts.

1999– Legal regulation of pension provision activity (Adoption of the Law for Supplementary

Voluntary Pension Provision and the Mandatory Social Insurance Code).

2000 – Establishment of the State Agency for Social Insurance Supervision and licensing of the

first pension insurance companies.

– Professional Pension Funds launched.

2002 –Universal Pension Funds launched.

2003 – Integration of supervision authority over the non bank financial sector

  • Establishment of Financial Supervision Commission(FSC)
  • Social Insurance Code adopted
1 development and regulation of funded pension provision 2 12
1. Development and Regulation of FundedPension Provision (2/12)
  • I. Mandatory Pay-as-you- go-system.
  • National Social Security Institute
  • National Revenues Agency
  • II. Mandatory supplementary retirement provision.
  • Universal and Professional Pension Funds*
  • III. Voluntarysupplementary retirement provision.
  • Voluntary Pension Funds
  • * Universal Pension Funds - mandatory participation for all born after 31.12.1959
  • Professional Pension Funds - for workers in hazardous work conditions (1st and 2nd category of labour)
  • Centralized collection of social insurance contributions by NRA.
  • Public control over the activity of PICs (Trustee and Advisory Boards)
1 development and regulation of funded pension provision 3 12
1. Development and Regulation of FundedPension Provision (3/12)

Bulgarian Pension System Current Characteristics

1 development and regulation of funded pension provision 4 12
1. Development and Regulation of FundedPension Provision (4/12)

Main Characteristics of Funded Pension Provision Market

1 development and regulation of funded pension provision 5 12
1. Development and Regulation of FundedPension Provision (5/12)

Regulatory framework

  • Social Insurance Code
  • Financial Supervision Commission Act
  • Secondary legislation acts adopted by:
    • Financial Supervision Commission
    • Council of Ministers
    • Bulgarian National Bank, Ministry of Finance, NSSI

Recent Regulatory Changes

  • Introduction of occupational pension schemes (transposition Directive 2003/41)
  • Liberalisation of pension funds investment regime
1 development and regulation of funded pension provision 6 12
1. Development and Regulation of FundedPension Provision (6/12)

Structural (dis)similiarities between the Bulgarian and EU Pension System Models

1 development and regulation of funded pension provision 7 12
1. Development and Regulation of FundedPension Provision (7/12)

Depth of Financial Market - Assets as Share of GDP in %

1 development and regulation of funded pension provision 10 12
1. Development and Regulation of FundedPension Provision (10/12)

Fees Structure

*1 EUR = 1.95583 BGN exchange rate pegged to EUR under currency board

1 development and regulation of funded pension provision 11 12
1. Development and Regulation of FundedPension Provision (11/12)

PF Net Assets (in th BGN) 31.12.2002 - 31.12.2010 (estimated forecast)

1 EUR = 1.95583 BGN exchange rate pegged to EUR under currency board

  • Increased contribution amounts
  • Lower social contribution evasion rates

Source: FSC, 2006

slide14

1. Development and Regulation of FundedPension Provision (12/12)

Net Replacement Rate

Total

I pillar

II pillar

60%

50%

40%

30%

20%

10%

0

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042

2044

2046

2048

2050

2052

2054

2 institutional organization of pension funds supervision 1 7
Transition from Sector Based to Integrated Supervision2. Institutional Organization of Pension Funds Supervision (1/7)

Bulgarian National Securities Commission (Since 1996) Staff: 125

Financial Supervision

Commission (FSC)

(SinceMarch 1, 2003)

Staff: 197

Insurance Supervision

Agency (Since 1997) Staff: 45

State Insurance Supervision Agency (Since 2000)

Staff: 43

2 institutional organization of pension funds supervision 2 7
2. Institutional Organization of Pension Funds Supervision (2/7)

Institutional Environment of Pension Supervision

  • Financial Supervision Commission
  • Ministry of Labor and Social Policy
  • National Social Security Institute
  • Ministry of Finance
  • Bulgarian National Bank
  • Financial Stability Consultative Council (Coordination Body)
2 institutional organization of pension funds supervision 3 7
2. Institutional Organization of Pension FundsSupervision (3/7)

Financial Supervision CommissionOrganisational Structure

2 institutional organization of pension funds supervision 4 7
2. Institutional Organization of Pension Funds Supervision(4/7)

FSC Objectives

  • Protecting the interests of the investors, insurance policy holders and pension insured persons;
  • Providing integrity, transparency and credibility of the financial markets
2 institutional organization of pension funds supervision 5 7
2. Institutional Organization of Pension Funds Supervision(5/7)

Powers of the Financial Supervision Commission

  • Development of the regulatory framework
  • Licensing regime
  • Supervision
  • Sanctions

Powers of the Deputy Chairman of FSC in Charge of Social

Insurance Supervision

  • Issues authorisations as provided in the Social Insurance Code
  • Approves documents and defines the requirements thereof
  • Approves methodological guidelines, document samples, etc.
  • Orders on-site inspections
  • Implements enforcement measures and issues penalty decrees
2 institutional organization of pension funds supervision 6 7
2. Institutional Organization of Pension Funds Supervision(6/7)

Institutional Independence of FSC

  • Autonomous institution created under a special legislative act
  • Reporting to Parliament
  • Selection of the FSC members by the Parliament with a 6 year term in office
  • Mixed funding (State Budget/ Supervised entities)
2 institutional organization of pension funds supervision 7 7
2. Institutional Organization of Pension Funds Supervision (7/7)

Cooperationand Consultation

  • FSC is member of:
    • Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) (observer status);
    • International Organization of Pension Supervisors (IOPS);
    • International Organization of Securities Commissions (IOSCO);
    • International Association of Insurance Supervisors (IAIS).
  • Memorandums of Understanding and Exchange of Information signed with partner institutions.
3 supervisory approach 1 5
3. Supervisory Approach (1/5)

Characteristics of the style and approach implemented in Bulgarian pension supervision

  • Restrictive – license with strict requirements for stepping into the social insurance market
  • Proactive – on-going monitoring and regular interventions
  • Intensive – daily communication
  • Legislatively oriented (compliance based)
3 supervisory approach 2 5
3. Supervisory Approach(2/5)

Supervisory Methods and Processes

Supervisory

measures

On-site supervision

Off-site supervision

Analysis,

evaluation

and

priori-

tising

Supervision

planning and strategy

Approach and evaluation program

Reporting

Response from the management and follow-up activities

Enforced

admin.

measures

Examination function

Organization and staff

3 supervisory approach 3 5
3. Supervisory Approach(3/5)

Preliminary Supervision

Licensing Requirements for Pension Insurance Companies as regards:

  • Capital
  • Shareholders with significant participation
  • Managerial and controlling bodies and the actuaries
  • Internal control system
  • Technical equipment, staffing and information provision
3 supervisory approach 4 5
3. Supervisory Approach(4/5)

Off-site Supervision of Pension Insurance Companies (1)

  • On-going monitoring over
    • Asset valuation of pension funds,
    • Calculation of unit value
    • Keeping of investment limits
  • Information sources:
    • Daily reports by the PICs and the custodian banks submitted electronically to the FSC
  • Supervision over the contents of the PIC’sWEB-pages
  • Means of supervsion:
    • IT system for supervision (Е-fsc) through built-in filters
  • Supervisory activities/measures:
    • Requests for corrections
    • Imposition of enforces administrative measures
    • Imposition of property payments
3 supervisory approach 5 5
3. Supervisory Approach(5/5)

On-site Supervision of Pension Insurance Companies

  • Planning of examinations
  • Types of examination– planned (theme), and claims based
  • Integration of the off-site and on-site supervision
4 challenges in private pension funds supervision and regulation 1 2
4. Challenges in Private Pension Funds Supervision and Regulation (1/2)
  • Regulation of the pay-out phase regarding the life-long pensions under the second pillar
  • Expanding the investment choice opportunities of participants in the voluntary pension insurance
  • Transition from the approach of quantitative portfolio limits to the prudent person investment approach
4 challenges in private pension funds supervision and regulation 2 2
4. Challenges in Private Pension Funds Supervision and Regulation (2/2)
  • Integrated regulation of the financial markets in keeping with the EU directives
  • Transition towards functional integration and consolidated supervision over the non-banking financial sector
  • Change in the supervision approach and style: from traditional (static) to dynamic (risk-based)
slide32
Q & A?

Thank you for your attention!

e-mail:petkov_b@fsc.bg

phone: (+359 2) 94 04 575

fax: (+359 2) 829 43 21