From January 1, 2027, a new model for managing pension savings in supplementary pension insurance is being introduced in our country. Until now, the funds of all insured in universal pension funds were managed in the same way. From the beginning of next year, a dynamic, balanced and conservative subfund is being introduced. The difference is that in each of them the money is invested in different types of assets according to the age and preferences of the pension companies' clients, novini.bg pointed out.
On this occasion, Svetla Nestorova, a member of the Bulgarian Association of Supplementary Pension Insurance Companies (BADDPO), stated at a press conference that every citizen has a three-month period (until November 30) in which to choose which sub-fund they want to go to.
Regarding the dynamic sub-fund, Nestorova explained that it is intended for younger people up to 50 years old; the balanced sub-fund is for people from 50 years old to 3 years before reaching retirement age; and the conservative sub-fund comes into effect for the last three years before reaching retirement age.
With the third sub-fund, the funds in the pension account will be managed very conservatively, because the main task is to preserve the already accumulated profitability.
Nestorova emphasized that each person can decide for themselves which sub-fund they want to be in. She gave an example with herself, saying that although she is over 50 years old, her desire is to be included in the dynamic sub-fund. And she explained that this can be done by each person, depending on their wishes and financial plans.
„The first and most important step is for a person to get informed. Because there are people who do not know which pension insurance company they are with, nor do they know how much accumulation they have. So let them show interest. Pension insurance is like a bank account, i.e. this is your money. Each person could receive a consultation from the company's office. This matter is not easy, but it concerns every citizen“, she explained.
Nestorova assured that the changes to the Social Security Code, which come into force on January 1 next year, not only change multi-funds, but also improve the security of the system.
“The gross amount of contributions is guaranteed by law, no matter how much these gross contributions are, i.e. "the funds cannot disappear," Nestorova pointed out.
She also added that the funds will not disappear if something happens to the client, explaining that this money is inherited from his family.
“Everyone is free to make the choice that they consider most correct for themselves“, Nestorova added.
In order to express their preference for which subfund they want to be in, Nestorova explained that during these three months people must contact their pension company and state which subfund they want. And she reassured that even if for some reason a person fails to do so, they will be able to do so next year.
Regarding the subfunds themselves, Nestorova explained that the dynamic one is better to earn, since that is where the money of younger people is. Up to 90 percent of the assets of the dynamic sub-fund will be invested in variable-income financial instruments (e.g. shares), because they are profitable there and the expected average return is over 7 percent. In a balanced sub-fund, up to 55 percent of the assets will be invested in variable-income financial instruments, and the rest will be fixed. In this case, the expected average annual return is between 4 and 7%, and this sub-fund is suitable for people aged between 55 and 62. In the conservative sub-fund – up to 25 percent of the assets will be in financial instruments with variable income and the expected yield is 2-3%.
Nestorova called on people to take advantage of this three-month period and inform themselves on the topic.
To illustrate what she was talking about, Nestorova gave an example, taking as a reference the average salary in Bulgaria, which is currently 1,440 euros.
„If someone is starting to enter a full insurance cycle, they will be insured for over 40 years. We have set ultra-conservative parameters, according to which their salary will increase for the entire period they are at work, by an average of 2% and we have set an average yield between the different funds. Such a person could, if he does not have a third pillar, count on a 780 euro pension with some conservative estimates of the performances of the three sub-funds of the second pillar. Of course, these 780 euros are an addition to the first pension. If this same person at the age of 20 builds a third pillar with 130 euros and if the funds are ultra-conservative and his average return for all his years until retirement is 5%, he will have another 243,000 euros. In other words, we are already going with both pillars - the second and third, to over 400,000 euros,“ explained Nestorova.
“Added to all this work is the third pillar of pension insurance, which is voluntary, but which is used by about 1/3 of the population and through their employers“, explained Nestorova.
She noted that the third pillar is a place where a person can contribute whenever and as much as they want.
“With it, there is complete freedom and flexibility of funds and tax breaks in the amount of 10%. This pillar also has an 8-9% yield. Besides, the money is relatively liquid“, specified Nestorova.
According to her, the multi-fund reform is also an opportunity to fight inflation.
Finally, she reminded again that people will be able to safely trust the automatic selection, but also decide for themselves which sub-fund to go to.
“Everyone can decide to stay in the same pension insurance company, but change the investment profile or change the company they are in, and they can do it as many times as they want. When the moment comes three years before retirement, we all necessarily and automatically go to the conservative fund. There, the focus is to preserve the money and the accumulated savings and not lose anything due to market movements”, said Nestorova.