Developments and Trends in Fully - Funded Pensions in Bulgaria

1. Developments and Trends in Fully-Funded Pensions in Bulgaria Bisser Petkov – Deputy Chairperson of FSC, Head of Social Insurance Supervision Department New Investment Challenges in Pension Insurance, 15.04.2004

2. The Bulgarian Pension Model: learning from international experience and indigenous solutions Key indicators of the current situation and development of the pension market in Bulgaria Investment return of pension funds Contents

3. 1994 – voluntary fully-funded pension based on individual account accumulations emerged 1999 – regulating this type of pensions by legislation (adoption of SVPIA and MSIC) 2000 – Establishing SISA and licensing the first pension companies - Beginning of membership in occupational pension funds 2002 – universal pension funds started operating 2003 – merging supervisors in the non-banking financial sector – establishing FSC - Consolidating the reform (adopting SI Code) Developing Fully-funded Pensions in Bulgaria (major steps)

4. Regulating and strengthening the voluntary pension provision system (IIIrd pillar) • Reforming the existing pension system (Ist pillar – mandatory pay-as-you-go system) • Transferring part of the mandatory pension contributions to the system of occupational and universal pension funds (IInd pillar) Essential Features of the Implemented Pension Reform New Investment Challenges in Pension Insurance, 15.04.2004

5. Security through diversity and competition: three-pillar pension model • Reforming the public social insurance systemadministered by the NSSI (first pillar) • Supplementary mandatory pension insurance (second pillar) • Mandatory participation • Defined contributions accumulated in individual accounts • Open-end funds (occupational and universal) managed by private pension companies (PICs) • Centralized collection process administered by the NSSI • Supplementary voluntary pension provision (third pillar) • Public control over the operations of PICs (Consultative and Trustee Boards) • Government supervision over supplementary pension provision (SISA FSC) Core Characteristics of the Bulgarian Pension Model New Investment Challenges in Pension Insurance, 15.04.2004

6. Bulgarian Pension Model I PILLAR Mandatory social insurance PAYG system NSSI II PILLAR Supplementary mandatory pension insurance Fully-funded pension system with individual accounts III PILLAR Supplementary voluntary pension insurance Fully-funded pension system with individual accounts Voluntary pension funds – since –1994 Universal pension funds – mandatory participation of persons born after 31.12.1959 Occupational pension funds – for types of occupation requiring early retirement

7. Maintaining the key status of the mandatory PAYG system with defined benefits • Cautious and gradual approach towards the introduction of a fully-funded component managed by private companies through transfers from the PAYG to the fully-funded system (2% - 5%) • One PIC is allowed by law to manage 3 PFs • Mandatory participation of persons working in arduous labor conditions; eligibility for programmed withdrawal upon early retirement Specific characteristics of the Bulgarian Pension Model New Investment Challenges in Pension Insurance, 15.04.2004

8. Increasing the minimum capital of the PIC required by law • Introducing daily asset valuation for the PFs and marinating the individual accounts in units following 01.07.2004 • Additional regulatory guarantees for: • security of the pension assets • minimum return on the investments of the supplementary mandatory pension funds Changing the System as We Go New Investment Challenges in Pension Insurance, 15.04.2004

9. 2000 – Licensing 9 PICs 2001 – Berliniche Leben was terminated through voluntary liquidation 2003 – PIC Doverie acquired PIC Bulgaria - Licensing a new company – “DZI – Pension Insurance” 2004 – eight licensed PICs, each managing three PFs (universal, occupational, voluntary) Development of the Bulgarian Pension Market

10. Number of participants by type of PFs quarterly basis (2002 – 2003)

11. PIC Market Share by Number of PF Participants (through Dec 31, 2003) Doverie PIC Allianz-Bulgaria PIC Saglasie PIC ING PIC DSK - Rodina PIC Lukoil Garant - Bulgaria PIC Sila PIC DZI - Pension insurance PIC

12. Net Assets of Pension Funds (2002 – 2003)

13. Market shares of PICs by volume of assets under management (through 31.12.2003) Allianz-Bulgaria PIC Doverie PIC 70,26 Saglasie PIC Lukoil Garant - Bulgaria PIC ING PIC DSK - Rodina PIC Sila PIC DZI - Pension insurance PIC

14. Regulatory investment limits • Actual investment portfolio structure • Return on the investments of the PFs PF Investments and Yield New Investment Challenges in Pension Insurance, 15.04.2004

15. Regulatory Investment Limits for Voluntary Pension Funds (through 31.12.2003)

16. Regulatory Investment Limits for Universal and Occupational PFs (through 31.12.2003)

17. UPF Investment Portfolio Structure (through Dec 31, 2003)

18. OPF Investment Portfolio Structure (through Dec 31, 2003)

19. VPF Investment Portfolio Structure (through Dec 31, 2003)

20. Pension Funds and Capital Market Development in Bulgaria

21. Investment Return of Supplementary Mandatory Pension Funds

22. Investment Return of Supplementary Voluntary Pension Funds

23. Types of government debt instruments held by PFs through 31.12.2003

24. Maturity Structure of Government Securities Held by PFs

25. Currency Exposition of the PFs’ Investment Portfolio through 31.12.2003