The Social Committee in Parliament adopted on first reading the changes in the pension model, which envisage the division of the second pillar into three sub-funds - dynamic, balanced and conservative. The main goal is for insured persons to choose the investment strategy for their money themselves, with the goal of achieving higher profitability.
In the program “Your Day“ on NOVA NEWS, former Social Minister Hristina Hristova explained that this change is embedded in the very logic of our pension system and should not be perceived as a radical reform. According to her, this is a way to spread the risk and allow people with a longer horizon until retirement to accumulate more funds.
Hristova made a detailed analysis of the differences in the sub-funds, emphasizing that they will be based on the life cycle of workers. Younger people (up to the age of 50) will be offered a dynamic sub-fund, which is riskier, but with the potential for much higher returns. For people over 50, the balanced profile is suitable, and for those who have less than three years left until retirement - the conservative one, where the risk is minimized.
She emphasized that the choice will be absolutely voluntary. If a young person does not want his funds to be invested risky, he can choose a balanced fund. The changes also provide for a new way of forming fees - the fee on the contribution is reduced, but a fee on the yield is introduced. Hristova defined this as “fair“, since companies will only profit if they bring real profit to the insured persons.
► The second pension is personal and inherited
In response to public concerns that people's money could “disappear“, Hristova categorically stated that the assets in the second pillar are guaranteed. “The only risk is that the profitability may not be very high, but the accumulated funds themselves are in personal accounts and are the property of the person“, she explained. She reminded the significant difference with the first pillar - while in the solidarity fund the money “burns“ upon the death of the insured person, in the second pillar they are hereditary and the relatives of the deceased receive them.
Why are the current second pensions low?
The former minister also commented on the dissatisfaction of the first pensioners born after 1960, whose amounts from private funds are often modest. According to her, the reasons are objective and are a result of the more difficult years in the past:
The high share of the shadow economy and work without contracts in the 1990s;
Mass insurance on a minimum wage;
Periods of high unemployment.
Hristova pointed out that while the system is designed for 40 years of accumulation, current pensioners have only contributed funds for about 20 years, which is not enough to reach the full capacity of the second pillar.
Hristina recommended that every worker check the status of their personal account on the website of the relevant pension company at least once a year in order to track the profitability and regularity of their contributions.